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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
    FORM 10-Q þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Period ended March 31, 2005
 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from
            to
 Commission file no. 1-14537 Lodgian, Inc. (Exact name of registrant as specified in its charter)
 Delaware
    
    52-2093696(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    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 þ No  ̈ Indicate by check mark whether the registrant is an accelerated filer as defined by section
12-b-2 of the Act. Yes þ No o 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 þ No  ̈ 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 May 1, 2005Common
    
    24,545,844




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LODGIAN, INC. AND SUBSIDIARIES INDEX PagePART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Condensed Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004 (unaudited)
    
    
    2Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2005 and March 31, 2004 (unaudited)
    
    
    3Condensed Consolidated Statement of Stockholders Equity for the Three Months Ended March 31, 2005 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2005 and March 31, 2004 (unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3.
    
    Quantitative and Qualitative
Disclosures About Market Risk
    
    
    40Item 4.
    
    Controls and
Procedures
    
    
    40PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    40Item 6.
    
    Exhibits
    
    
    40Signatures
    
    
    41EX-10.38 AMENDMENT NO. 2 TO LODGIAN 401(K) PLANEX-10.39 AMENDMENT NO. 3 TO LODGIAN 401(K) PLANEX-10.40 LOAN MODIFICATION AGREEMENTEX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32 SECTION 906 CERTIFICATION OF THE CEO AND CFO
  1




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PART I  FINANCIAL INFORMATION 
 Item 1.Financial Statements LODGIAN, INC. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED BALANCE SHEETS March 31, 2005
    
    
    December 31, 2004(Unaudited in thousands,
except share data)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    21,537
    
    
    $
    36,234Cash, restricted
    
    
    12,315
    
    
    
    9,840Accounts receivable (net of allowances: 2005 - $713;
2004 - $684)
    
    
    10,613
    
    
    
    7,967Insurance receivable
    
    
    3,225
    
    
    
    3,280Inventories
    
    
    6,344
    
    
    
    6,293Prepaid expenses and other current assets
    
    
    19,246
    
    
    
    17,232Assets held for sale
    
    
    31,514
    
    
    
    30,528Total current assets
    
    
    104,794
    
    
    
    111,374Property and equipment, net
    
    
    571,441
    
    
    
    569,371Deposits for capital expenditures
    
    
    39,522
    
    
    
    34,787Other assets
    
    
    7,251
    
    
    
    7,775$
    723,008
    
    
    $
    723,307LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    11,765
    
    
    $
    10,957Other accrued liabilities
    
    
    34,621
    
    
    
    31,475Advance deposits
    
    
    2,968
    
    
    
    1,638Insurance advances
    
    
    17,834
    
    
    
    2,000Current portion of long-term liabilities
    
    
    22,766
    
    
    
    25,290Liabilities related to assets held for sale
    
    
    28,029
    
    
    
    30,541Total current liabilities
    
    
    117,983
    
    
    
    101,901Long-term liabilities
    
    
    383,935
    
    
    
    393,143Total liabilities
    
    
    501,918
    
    
    
    495,044Minority interests
    
    
    1,484
    
    
    
    1,629Commitments and contingencies
Stockholders equity:Stockholders equity:Common stock, $.01 par value, 60,000,000 shares
authorized; 24,579,255 issued at M arch 31, 2005
and December 31, 2004
    
    
    246
    
    
    
    246Additional paid-in capital
    
    
    306,906
    
    
    
    306,943Unearned stock compensation
    
    
    (258
    )
    
    
    (315
    )Accumulated deficit
    
    
    (89,026
    )
    
    
    (81,941
    )Accumulated other comprehensive income
    
    
    1,814
    
    
    
    1,777Treasury stock, at cost, 7,211 shares at M arch 31, 2005
and December 31, 2004
    
    
    (76
    )
    
    
    (76
    )Total stockholders equity
    
    
    219,606
    
    
    
    226,634$
    723,008
    
    
    $
    723,307
 See notes to condensed consolidated financial statements. 2




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LODGIAN, INC. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Three Months EndedMarch 31, 2005
    
    
    March 31, 2004(Unaudited in thousands, except per share data)Revenues:Rooms
    
    $
    54,461
    
    
    $
    56,050Food and beverage
    
    
    14,901
    
    
    
    16,227Other
    
    
    2,492
    
    
    
    2,70171,854
    
    
    
    74,978Operating expenses:Direct:Rooms
    
    
    15,494
    
    
    
    15,457Food and beverage
    
    
    10,982
    
    
    
    11,289Other
    
    
    1,930
    
    
    
    1,93128,406
    
    
    
    28,67743,448
    
    
    
    46,301Other operating expenses:Other hotel operating costs
    
    
    23,900
    
    
    
    23,194Property and other taxes, insurance, and leases
    
    
    5,690
    
    
    
    5,561Corporate and other
    
    
    4,658
    
    
    
    4,335Casualty losses
    
    
    104
    
    
    
    Depreciation and amortization
    
    
    6,658
    
    
    
    6,671Impairment of long-lived assets
    
    
    1,655
    
    
    
    Other operating expenses
    
    
    42,665
    
    
    
    39,761783
    
    
    
    6,540Other income (expenses):Interest income and other
    
    
    171
    
    
    
    43Interest expense and other financing costs:Preferred stock dividend
    
    
    
    
    
    
    (4,285
    )Interest expense
    
    
    (6,983
    )
    
    
    (8,024
    )Loss before income taxes and minority interests
    
    
    (6,029
    )
    
    
    (5,726
    )Provision for income taxes  continuing operations
    
    
    (67
    )
    
    
    (76
    )Minority interests
    
    
    145
    
    
    
    (147
    )Loss from continuing operations
    
    
    (5,951
    )
    
    
    (5,949
    )Discontinued operations:Loss from discontinued operations before
income taxes
    
    
    (1,134
    )
    
    
    (1,137
    )Income tax benefit
    
    
    
    
    
    
    Loss from discontinued operations
    
    
    (1,134
    )
    
    
    (1,137
    )Net loss attributable to common stock
    
    $
    (7,085
    )
    
    $
    (7,086
    )Basic and diluted loss per common share:Net loss attributable to common stock
    
    $
    (0.29
    )
    
    $
    (3.04
    )
 See notes to condensed consolidated financial statements. 3




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LODGIAN, INC. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY AccumulatedAdditional
    
    
    Unearned
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Stock
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Treasury
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Deficit
    
    
    Income
    
    
    Stock
    
    
    Equity (Deficit)(Unaudited in thousands, except share data)Balance December 31, 2004
    
    
    24,579,255
    
    
    $
    246
    
    
    $
    306,943
    
    
    $
    (315
    )
    
    $
    (81,941
    )
    
    $
    1,777
    
    
    $
    (76
    )
    
    $
    226,634Amortization of unearned stock compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57Cost relating to issuance of new common
stock in 2004
    
    
    
    
    
    
    
    
    
    
    (37
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37
    )Comprehensive loss:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,085
    )
    
    
    
    
    
    
    
    
    
    
    (7,085
    )Currency
translation adjustments (related taxes
estimated at nil)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    
    
    
    
    37Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,048
    )Balance March 31, 2005
    
    
    24,579,255
    
    
    $
    246
    
    
    $
    306,906
    
    
    $
    (258
    )
    
    $
    (89,026
    )
    
    $
    1,814
    
    
    $
    (76
    )
    
    $
    219,606
 The comprehensive loss for the three months ended March 31, 2004 was $7.1 million. Accumulated Other
Comprehensive Income represents currency translation adjustments. See notes to condensed consolidated financial statements. 4




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LODGIAN, INC. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months EndedMarch 31, 2005
    
    
    March 31, 2004(Unaudited in thousands)Operating
activities:Net loss
    
    $
    (7,085
    )
    
    $
    (7,086
    )Adjustments to reconcile net loss
to net cash provided by operating activities:Depreciation and amortization
    
    
    6,770
    
    
    
    6,938Impairment of long-lived assets
    
    
    3,545
    
    
    
    2,153Amortization of unearned stock compensation
    
    
    57
    
    
    
    50Preferred stock dividends
    
    
    
    
    
    
    4,285Casualty losses
    
    
    104
    
    
    
    Minority interests
    
    
    (145
    )
    
    
    147Gain on asset dispositions
    
    
    (2,002
    )
    
    
    (3,007
    )Write-off and amortization of deferred financing costs
    
    
    367
    
    
    
    1,818Other
    
    
    (389
    )
    
    
    (128
    )Changes in operating assets and liabilities:Accounts receivable, net of allowances
    
    
    (2,772
    )
    
    
    (3,128
    )Insurance receivable
    
    
    55
    
    
    
    Inventories
    
    
    (192
    )
    
    
    244Prepaid expenses, other assets and restricted cash
    
    
    (4,454
    )
    
    
    (659
    )Accounts payable
    
    
    479
    
    
    
    560Other accrued liabilities
    
    
    3,891
    
    
    
    2,494Advance deposits
    
    
    1,429
    
    
    
    1,432Net cash (used by) provided by operating activities
    
    
    (342
    )
    
    
    6,113Investing
activities:Capital improvements
    
    
    (19,649
    )
    
    
    (5,001
    )Proceeds from sale of assets, net of related selling costs
    
    
    9,024
    
    
    
    13,983(Deposits) withdrawals for capital expenditures
    
    
    (4,735
    )
    
    
    2,205Insurance advances related to hurricanes
    
    
    15,834
    
    
    
    Other
    
    
    (11
    )
    
    
    (42
    )Net cash provided by investing activities
    
    
    463
    
    
    
    11,145Financing
activities:Proceeds from exercise of stock options and issuance of
common stock
    
    
    
    
    
    
    4Principal payments on long-term debt
    
    
    (14,698
    )
    
    
    (14,936
    )Payments of deferred financing costs
    
    
    (111
    )
    
    
    (561
    )Net cash used in financing activities
    
    
    (14,809
    )
    
    
    (15,493
    )Effect of exchange rate changes on cash
    
    
    (9
    )
    
    
    Net increase (decrease) in cash and cash equivalents
    
    
    (14,697
    )
    
    
    1,765Cash and cash equivalents at beginning of period
    
    
    36,234
    
    
    
    10,897Cash and cash equivalents at end of period
    
    $
    21,537
    
    
    $
    12,662Supplemental cash flow information:Cash paid during the period for:Interest, net of the amounts capitalized shown below
    
    $
    6,878
    
    
    $
    7,561Interest capitalized
    
    
    481
    
    
    
    75Income taxes, net of refunds
    
    
    88
    
    
    
    234Supplemental disclosure of non-cash investing and financing
activities:Net non-cash debt (decrease) increase
    
    
    (32
    )
    
    
    44Issuance of promissory notes as consideration for
taxation liabilities
    
    
    
    
    
    
    2,369
 See notes to condensed consolidated financial statements. 5




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LODGIAN, INC. AND SUBSIDIARIES 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Throughout this Form 10-Q, we will use the terms Lodgian, we, our, and us, to refer to
Lodgian, Inc. and unless the context otherwise requires or expressly states, our subsidiaries). 1. Business Summary We are one of the largest independent owners and operators of full-service hotels in the
United States in terms of our number of guest rooms, as reported by Hotel Business in the 2005
Green Book issue published in December 2004. We are considered an independent owner and operator
because we do not operate our hotels under our own name. We operate substantially all of our hotels
under nationally recognized brands, such as Crowne Plaza, Holiday Inn, Marriott, and
Hilton. As of May 1, 2005, we operated 83 hotels with an aggregate of 15,681 rooms, located in
31 states and Canada. Of the 83 hotels, 76 hotels, with an aggregate of 13,718 rooms, are part of
our continuing operations, while seven hotels, with an aggregate of 1,963 rooms, are held for sale.
Three of the seven hotels with an aggregate of 736 rooms were identified for sale in January 2005.
Our current portfolio of 83 hotels consists of:  
    78 hotels that we wholly own and operate through subsidiaries;
    four hotels that we operate in joint ventures in which we have a 50% or greater voting
equity interest and exercise control (see subsequent events for discussion on buyout of
joint venture partner at one of these hotels); and
    one hotel that we operate in a joint venture in which we have a 30% non-controlling
equity interest. We consolidate all of these hotels in our financial statements, other than the one hotel in
which we hold a non-controlling equity interest and which we account for under the equity method. Our hotels are primarily full-service properties that offer food and beverage services,
meeting space and banquet facilities and compete in the midscale and upscale market segments of the
lodging industry. As of May 1, 2005, we operated all but three of our hotels under franchises
obtained from nationally recognized hospitality franchisors. We operate 55 of our hotels under
franchises obtained from InterContinental Hotels Group as franchisor of the Crowne Plaza, Holiday
Inn, Holiday Inn Select and Holiday Inn Express brands. We operate 16 of our hotels under
franchises from Marriott International as franchisor of the Marriott, Courtyard by Marriott,
Fairfield Inn by Marriott and Residence Inn by Marriott brands. We operate another 9 hotels under
other nationally recognized brands. We believe that these strong national brands afford us many
benefits such as guest loyalty and market share premiums. 2. General Our condensed consolidated financial statements include the accounts of Lodgian, Inc., its
wholly-owned subsidiaries and four joint ventures in which Lodgian, Inc. has a controlling
financial interest (owns a 50% or greater voting equity interest and exercises control). See
subsequent events for discussion on buyout of joint venture partner at one of these hotels. We
believe we have control of the joint ventures when we manage and have control of the joint
ventures assets and operations. We report the third party partners share of the net income or
loss of these joint ventures and their share of the joint ventures equity as minority interest. We
include in other assets our investment in the hotel in which we hold a minority interest and which
we account for under the equity method. We report our share of the income or loss of this
minority-owned hotel as part of interest income and other. All significant intercompany accounts
and transactions have been eliminated in consolidation. 6




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The accounting policies which we follow for quarterly financial reporting are the same as
those which we disclosed in Note 1 of the Notes to Consolidated Financial Statements included in
our Annual Report on Form 10-K (Form 10-K) for the year ended December 31, 2004. During 2003, we developed a portfolio improvement strategy which was consistent with our goals
of operating a portfolio of profitable, well-maintained and appealing hotels at superior locations
in strong markets. In accordance with this strategy and our efforts to reduce debt and interest
costs, we identified 19 hotels, one office building and three land parcels for sale. In January
2005, we classified an additional three hotels as held for sale. Between November 1, 2003 and
March 31, 2005, we sold the office building, 15 of the 22 hotels and two of the three land parcels.
As of March 31, 2005, our hotel portfolio consisted of 83 hotels, 76 of which represent our
continuing operations portfolio (including one hotel in which we have a non-controlling equity
interest which we do not consolidate). We believe that our held for sale assets as of March 31,
2005 remain properly classified in accordance with Statement of Financial Accounting Standard
(SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. In our opinion, the accompanying unaudited condensed consolidated financial statements contain
all adjustments, consisting primarily of normal recurring adjustments, necessary to present fairly
our financial position as of March 31, 2005, the results of our operations for the three months
ended March 31, 2005 and March 31, 2004 and our cash flows for the three months ended March 31,
2005 and March 31, 2004. Our results for interim periods are not necessarily indicative of our
results for the entire year. You should read these financial statements in conjunction with our
consolidated financial statements and related notes included in our Annual Report on Form 10-K for
the year ended December 31, 2004. As we prepare our financial statements in accordance with accounting principles generally
accepted in the United States of America (GAAP), we reclassify certain prior period amounts to
conform to the current periods presentation. We also make estimates and assumptions which affect:  
    the reported amounts of assets and liabilities;
    the reported amounts of revenues and expenses during the reporting period; and
    the disclosures of contingent assets and liabilities at the date of our financial statements. Our actual results could differ from our estimates. Stock-based Compensation As we previously disclosed in our Annual Report on Form 10-K for the year ended December 31,
2004, on November 25, 2002, we adopted a new Stock Incentive Plan which replaced the stock option
plan previously in place. In accordance with the Stock Incentive Plan, and prior to the completion
of our public offering of common stock on June 25, 2004, we were permitted to grant awards to
acquire up to 353,333 shares of common stock to our directors, officers, or other key employees or
consultants as determined by a committee appointed by our Board of Directors. Awards may consist of
stock options, stock appreciation rights, stock awards, performance share awards, section 162(m)
awards or other awards determined by the committee. We cannot grant stock options pursuant to the
Stock Incentive Plan at an exercise price which is less than 100% of the fair market value per
share on the date of the grant. Vesting, exercisability, payment and other restrictions pertaining
to any awards made pursuant to the Stock Incentive Plan are determined by the Committee. At our
2004 annual meeting, stockholders approved an amendment and restatement of the Stock Incentive Plan
to, among other things, increase the number of shares of common stock available for issuance
thereunder by 29,667 immediately and, in the event we consummated a firm commitment, underwritten
public offering of our common stock, by an additional amount to be determined pursuant to a
formula. With the completion of our public offering of common stock on June 25, 2004, the total
number of shares available for issuance under our Stock Incentive Plan increased to 3,301,058
shares. On April 9, 2004, the Company issued to our CEO, Thomas Parrington, 1,382 restricted stock
units in accordance with his employment agreement. The restricted stock units vested on April 9,
2005 and were converted into an equal number of shares of common stock. On July 15, 2004, 22,222 restricted stock
units previously issued 7




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to Mr. Parrington vested. Pursuant to the terms of his restricted unit
award agreement, Mr. Parrington elected to have the Company withhold an appropriate number of
vested shares to satisfy the employment tax withholding requirements associated with the vesting of
the restricted units. Accordingly, 7,211 shares were withheld and deemed repurchased by the
Company, thereby resulting in the reporting of treasury stock in our Condensed Consolidated
Statement of Stockholders Equity. On January 31, 2005, we signed an employment contract with our newly promoted Chief Financial
Officer, and pursuant to the agreement issued options to purchase 25,000 shares of our common stock
with an exercise price of $11.72 per share, the average of the opening and closing prices of our
shares on the date of the grant. We present below a summary of our stock option plan and the restricted stock units activity
under the plan for the three months ended March 31, 2005: Weighted AverageOptions
    
    
    Exercise PriceBalance, December 31, 2004
    
    
    526,410
    
    
    
    $11.46Granted
    
    
    32,500
    
    
    
    11.78Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (7,971
    )
    
    
    11.53Balance, March 31, 2005
    
    
    550,939
    
    
    
    $11.47
 RestrictedstockBalance, December 31, 2004
    
    
    45,827Granted
    
    
    Shares converted to common stock
    
    
    Forfeited
    
    
    Balance, March 31, 2005
    
    
    45,827
 In the following table, we summarize information for options outstanding and exercisable at
March 31, 2005: Options outstanding
    
    
    Options exercisableWeighted average
    
    Weighted average
    
    
    
    
    
    
    Weighted averageRange of prices
    
    Number
    
    
    remaining life (in years)
    
    exercise prices
    
    
    Number
    
    
    exercise prices$9.00 to $10.50
    
    
    33,333
    
    
    8.3
    
    
    $  9.00
    
    
    
    11,111
    
    
    
    $  9.00$10.51 to $15.00
    
    
    404,250
    
    
    9.3
    
    
    $10.62
    
    
    
    
    
    
    
    $11.19$15.01 to $15.50
    
    
    106,190
    
    
    8.4
    
    
    $15.21
    
    
    
    71,033
    
    
    
    $15.21$15.51 to $16.00
    
    
    7,166
    
    
    8.5
    
    
    $15.66
    
    
    
    4,778
    
    
    
    $15.66550,939
    
    
    9.1
    
    
    $11.47
    
    
    
    86,922
    
    
    
    $14.44
 We account for stock option grants in accordance with Accounting Principles Board Opinion
(APB) No. 25, Accounting for Stock Issued to Employees and related interpretations. The income
tax benefit, if any, associated with the exercise of stock options is credited to additional
paid-in capital. Under APB No. 25, if the exercise price
of our employee stock options is equal to the market price of the underlying stock on the date
of grant, no compensation expense is recognized. Under SFAS No. 123, Accounting for Stock-Based
Compensation (as amended by SFAS No. 148), compensation cost is measured at the grant date based
on the estimated value of the award and is recognized over the service (or vesting) period. 8




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Had the compensation cost of our stock option plan been recognized under SFAS No. 123, based
on the fair market value at the grant dates, our pro forma net loss and net loss per share would
have been as follows: Three Months endedMarch 31, 2005
    
    
    March 31, 2004($ in thousands, except share data)Loss from continuing operations:As reported
    
    $
    (5,951
    )
    
    $
    (5,949
    )Add: Stock-based compensation
expense included in net income
    
    
    57
    
    
    
    50Deduct: Total pro forma stock-based
employee compensation expense
    
    
    (508
    )
    
    
    (175
    )Pro forma
    
    
    (6,402
    )
    
    
    (6,074
    )Loss from discontinued operations:As reported
    
    
    (1,134
    )
    
    
    (1,137
    )Add: Stock-based compensation
expense included in net income
    
    
    
    
    
    
    Deduct: Total pro forma stock-based
employee compensation expense
    
    
    
    
    
    
    Pro forma
    
    
    (1,134
    )
    
    
    (1,137
    )Net Loss attributable to common stock:As reported
    
    
    (7,085
    )
    
    
    (7,086
    )Add: Stock-based compensation
expense included in net income
    
    
    57
    
    
    
    50Deduct: Total pro forma stock based
employee compensation expense
    
    
    (508
    )
    
    
    (175
    )Pro forma
    
    $
    (7,536
    )
    
    $
    (7,211
    )Basic and diluted loss per common shareLoss from continuing operations:As reported
    
    $
    (0.24
    )
    
    $
    (2.55
    )Add: Stock-based compensation
expense included in net income
    
    
    
    
    
    
    0.02Deduct: Total pro forma stock-based
employee compensation expense
    
    
    (0.02
    )
    
    
    (0.08
    )Pro forma
    
    
    (0.26
    )
    
    
    (2.61
    )Loss from discontinued operations:As reported
    
    
    (0.05
    )
    
    
    (0.49
    )Add: Stock-based compensation
expense included in net income
    
    
    
    
    
    
    Deduct: Total pro forma stock-based
employee compensation expense
    
    
    
    
    
    
    Pro forma
    
    
    (0.05
    )
    
    
    (0.49
    )Net Loss attributable to common stock:As reported
    
    
    (0.29
    )
    
    
    (3.04
    )Add: Stock-based compensation
expense included in net income
    
    
    
    
    
    
    0.02Deduct: Total pro forma stock-based
employee compensation expense
    
    
    (0.02
    )
    
    
    (0.08
    )Pro forma
    
    $
    (0.31
    )
    
    $
    (3.10
    )
   3. Discontinued Operations As discussed above, during 2003, we identified 19 hotels, one office building and three land
parcels for sale as part of our portfolio improvement strategy and our efforts to reduce debt and
interest costs. In January 2005, we identified three additional hotels as held for sale. Between
January 1, 2005 and March 31, 2005, we sold three
hotels for an aggregate sales price of $9.5 million. From the sale of these assets, we paid
down debt of approximately $9.1 million. At December 31, 2004, seven hotels and one land parcel were held for sale. In January 2005,
we identified three additional hotels as held for sale. Between January 1, 2005 and March 31,
2005, we sold three of the hotels that were held for sale. Accordingly, at March 31, 2005, seven
hotels and one land parcel were held for sale. Management considers an asset held for sale when the following criteria per SFAS No. 144
Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144) are met:  a)
    Management commits to a plan to sell the asset; 9




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b)
    The asset is available for immediate sale in its present condition;c)
    An active marketing plan to sell the asset has been initiated at a
reasonable price;d)
    The sale of the asset is probable within one year; ande)
    It is unlikely that significant changes to the plan to sell the asset will
be made. Upon designation of a property as an asset held for sale and in accordance with the provisions
of SFAS No. 144, the Company records the carrying value of the property at the lower of its
carrying value or its estimated fair market value, less estimated selling costs, and the Company
ceases depreciation of the asset. All losses and gains on assets sold and held for sale (including any related impairment
charges) are included in (Loss) income from discontinued operations before income taxes in the
Consolidated Statement of Operations. All assets held for sale and the liabilities related to
these assets are separately disclosed in the Consolidated Balance Sheet. The amount the Company
will ultimately realize could differ from the amount recorded in the financial statements. In accordance with SFAS No. 144, we have included the hotel assets sold during 2004 and 2005
as well as the hotel assets held for sale at March 31, 2005 (including any related impairment
charges) in Discontinued Operations in the Consolidated Statements of Operations. The assets held
for sale at March 31, 2005 and December 31, 2004 and the liabilities related to these assets are
separately disclosed in the Condensed Consolidated Balance Sheets. The fair value of assets held for sale are based on the estimated selling prices less
estimated costs to sell. We determined the estimated selling prices in conjunction with our real
estate brokers. The estimated selling costs are based on our experience with similar asset sales.
During the three months ended March 31, 2005 and March 31, 2004, we recorded impairment charges of
$1.9 million and $2.2 million, respectively, on assets held for sale as follows: Consistent with our accounting policy on asset impairment, and in accordance with SFAS No.
144, the reclassification of assets from held for use to held for sale necessitates a determination
of fair value less costs of sale. The fair values of the assets held for sale are based on the
estimated selling prices less estimated costs to sell. We determined the estimated selling prices
in conjunction with our real estate brokers. The estimated selling costs are based on our
experience with similar asset sales. We record impairment charges and write down respective hotel
asset carrying values if their carrying values exceed the estimated selling prices less costs to
sell. The impairment of long-lived assets held for sale of $1.9 million recorded in the first
quarter 2005 represents the write-down of four hotels and one land parcel held for sale, the
written-off net book value of assets held for sale that were replaced in the first quarter 2005 and
adjustments to recapture previously recorded impairment on two hotels as outlined below:  a)
    an additional $0.3 million on the Holiday Inn Express Gadsden, AL to reflect
the estimated selling costs of this sale as this hotel was identified for sale in
January 2005 and to reflect the write-off of capital improvements spent on this hotel
for franchisor compliance that did not add incremental value or revenue generating
capacity to the property;b)
    an additional $1.0 million on the Holiday Inn Rolling Meadows, IL to reflect
the lowered estimated selling price of the hotel;c)
    an additional $0.3 million on the Holiday Inn Morgantown, WV to reflect the
reduced selling price and the additional charges to dispose of this hotel in February
2005; andd)
    an additional $0.4 million on the Mt. Laurel, NJ land parcel to reflect the
lowered estimated selling of the land parcel. The impairment of long-lived assets held for sale of $2.2 million recorded in first quarter
2004 represents the write-down of five hotels held for sale. As a result of these evaluations,
during the first quarter of 2004 we recorded impairment losses as follows: 10




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a)
    $0.1 million on the Holiday Inn Express Pensacola, FL to record the loss on
sale as this hotel was sold in March 2004;b)
    $0.3 million on the Downtown Plaza Hotel Cincinnati, OH as this hotel was
listed for sale in the second quarter 2003. Impairment was recorded to adjust for the
further reduction in the estimated selling price of this hotel; andc)
    $1.7 million on the Holiday Inn Rolling Meadows, IL as this hotel was
identified for sale in the second quarter 2003. Impairment was recorded to adjust for
the further reduction in the estimated selling price of the hotel. We have changed the method for preparing the cash flow statement to combine cash flows for
continuing and discontinued operations. All prior periods were changed to reflect this change in
presentation. Discontinued operations have not been segregated in the consolidated statement of cash flows. Assets related to discontinued operations consist primarily of real estate, net of accumulated
depreciation. Liabilities related to discontinued operations consist primarily of mortgage notes
payable. The following is a summary of the balance sheet information for discontinued operations: March 31, 2005
    
    
    December 31, 2004(Unaudited in thousands)Total assets
    
    $
    31,514
    
    
    $
    30,528Total liabilities
    
    $
    28,029
    
    
    $
    30,541
 The following is a summary of consolidated statements of operations information for
discontinued operations: March 31, 2005
    
    
    March 31, 2004(Unaudited in thousands)Total Revenues
    
    $
    6,207
    
    
    $
    12,567Total Expenses
    
    
    9,343
    
    
    
    16,712Gain on asset dispositions
    
    
    2,002
    
    
    
    3,008Loss from discontinued operations
    
    $
    (1,134
    )
    
    $
    (1,137
    )
 4. Cash, Restricted At March 31, 2005, our $12.3 million of restricted cash consisted of amounts reserved for
letter of credit collateral, a deposit required by our bankers, and cash reserved pursuant to
certain loan agreements. 5. Loss Per Share The following table sets forth the computation of basic and diluted loss per share: 11




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Three Months EndedMarch 31, 2005
    
    
    March 31, 2004(In thousands, except per share data)Basic and diluted loss per share:Numerator:Loss from continuing operations
    
    $
    (5,951
    )
    
    $
    (5,949
    )Loss from discontinued operations
    
    
    (1,134
    )
    
    
    (1,137
    )Net loss attributable to common stock
    
    $
    (7,085
    )
    
    $
    (7,086
    )Denominator:Denominator for basic and diluted loss per share -
weighted-average shares
    
    
    24,572
    
    
    
    2,333Basic and diluted loss per common share:Loss from continuing operations
    
    $
    (0.24
    )
    
    $
    (2.55
    )Loss from discontinued operations
    
    
    (0.05
    )
    
    
    (0.49
    )Net loss attributable to common stock
    
    $
    (0.29
    )
    
    $
    (3.04
    )
 We did not include the shares associated with the assumed conversion of the restricted
stock units (45,826 shares) or the exercise of stock options (options to acquire 550,939 shares of
common stock) and A and B warrants (rights to acquire 503,546 and 343,122 shares of common stock,
respectively) in the computation of diluted loss per share for the three months ended March 31,
2005 because their inclusion would have been antidilutive. We did not include the shares associated
with the assumed conversion of the restricted stock units (66,666 shares) or the exercise of stock
options (options to acquire 154,124 shares of common stock) and A and B warrants (rights to acquire
503,546 and 343,122 shares of common stock, respectively) in the computation of diluted loss per
share for the three months ended March 31, 2004 because their inclusion would have been
antidilutive. 6. Debt At March 31, 2005 and December 31, 2004, long-term liabilities consisted of the following: 12




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March 31,
    
    
    December 31,2005
    
    
    2004($ in thousands)Refinancing DebtMerrill Lynch Mortgage Lending, Inc.  Floating
    
    $
    93,212
    
    
    $
    102,617Merrill Lynch Mortgage Lending, Inc.  Fixed
    
    
    257,350
    
    
    
    258,410Merrill Lynch Mortgage Lending, Inc.  Total
    
    
    350,562
    
    
    
    361,027Computer Share Trust Company of Canada
    
    
    7,703
    
    
    
    7,843Other FinancingsColumn Financial, Inc.
    
    
    24,460
    
    
    
    25,058Lehman Brothers Holdings, Inc.
    
    
    22,799
    
    
    
    22,927JP Morgan Chase Bank, Trustee
    
    
    10,064
    
    
    
    10,110DDL Kinser
    
    
    2,260
    
    
    
    2,286Column Financial, Inc.
    
    
    8,475
    
    
    
    8,545Column Financial, Inc.
    
    
    
    
    
    
    3,069Tax notes issued pursuant to Lodgians Joint Plan of
Reorganization
    
    
    3,097
    
    
    
    3,302Total  Other Financings
    
    
    71,155
    
    
    
    75,297Long-term liabilities  otherOther long-term liabilities
    
    
    1,829
    
    
    
    1,8651,829
    
    
    
    1,865431,249
    
    
    
    446,032Long-term liabilities related to assets held for sale
    
    
    (24,548
    )
    
    
    (27,599
    )$
    406,701
    
    
    $
    418,433Less: Current portion of long-term liabilities
    
    
    (22,766
    )
    
    
    (25,290
    )Total long-term liabilities  continuing operations
    
    $
    383,935
    
    
    $
    393,143
 Substantially all of our property and equipment are pledged as collateral for long-term
obligations with the exception of five hotels and one land parcel, of which three of these five
hotels and the land parcel are classified as held for sale. Certain of our mortgage notes are
subject to a prepayment or yield maintenance penalty if we repay them prior to their maturity. Set
forth below, by debt pool, is a summary of our debt at March 31, 2005 along with the applicable
interest rates and the related carrying values of the property, plant and equipment which
collateralize these debts: 13




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##### Table of Contents



March 31, 2005Number
    
    
    Property, plant
    
    
    Long-term
    
    
    Interestof Hotels
    
    
    and equipment, net (1)
    
    
    obligations (1)
    
    
    ratesRefinancing DebtMerrill Lynch Mortgage Lending, Inc.
- Floating
    
    
    23
    
    
    $
    111,995
    
    
    $
    93,212
    
    
    LIBOR plus 3.40%Merrill Lynch Mortgage Lending, Inc.
- Fixed
    
    
    35
    
    
    
    319,764
    
    
    
    257,350
    
    
    6.58%Merrill Lynch Mortgage Lending,
Inc.  Total
    
    
    58
    
    
    
    431,759
    
    
    
    350,562Computershare Trust Company of Canada
    
    
    1
    
    
    
    16,772
    
    
    
    7,703
    
    
    7.88%Other FinancingsColumn Financial, Inc.
    
    
    9
    
    
    
    69,317
    
    
    
    24,460
    
    
    10.59%Lehman Brothers Holdings, Inc.
    
    
    5
    
    
    
    39,636
    
    
    
    22,799
    
    
    $16,063 at 9.40%; $6,736 at 8.90%JP Morgan Chase Bank
    
    
    2
    
    
    
    6,217
    
    
    
    10,064
    
    
    8.00%DDL Kinser
    
    
    1
    
    
    
    3,105
    
    
    
    2,260
    
    
    8.25%Column Financial, Inc.
    
    
    1
    
    
    
    11,883
    
    
    
    8,475
    
    
    9.45%Total  other financing
    
    
    18
    
    
    
    130,158
    
    
    
    68,05877
    
    
    
    578,689
    
    
    
    426,323
    
    
    7.01%(2)Long-term liabilities  otherTax notes issued pursuant to our
Joint Plan
of Reorganization
    
    
    
    
    
    
    
    
    
    
    3,097Other
    
    
    
    
    
    
    
    
    
    
    1,829
    
    
    
    
    
    
    
    4,926Property, plant and equipment  other
    
    
    5
    
    
    
    22,900
    
    
    
    82
    
    
    
    601,589
    
    
    
    431,249Held for sale
    
    
    (7
    )
    
    
    (29,311
    )
    
    
    (24,548
    )Total March 31, 2005 (3)
    
    
    75
    
    
    $
    572,278
    
    
    $
    406,701
   (1)
    
    Debt obligations and property, plant and
equipment of one hotel in which we have a non-controlling equity
interest that we do not consolidate are excluded from the table above.(2)
    
    The 7.01% in the table above represents our
annual weighted average cost of debt at March 31, 2005, using a LIBOR
of 2.87%.(3)
    
    Debt obligations at March 31, 2005 include the current portion. Mortgage Debt On June 25, 2004, we closed on the $370 million Merrill Lynch Mortgage Lending, Inc. (Merrill
Lynch Mortgage) refinance (Refinancing Debt) secured by 64 of our hotels, of which, as of May 1,
2005, six hotels have since been sold. We refinanced (1) our outstanding mortgage debt (Merrill
Lynch Exit Financing) with Merrill Lynch Mortgage which, as of June 25, 2004, had a balance of
$290.9 million, (2) certain of our outstanding mortgage debt (the Lehman Financing) with Lehman
Brothers Holdings, Inc. (Lehman) which, as of June 25, 2004, had a balance of $56.1 million, and
(3) our outstanding mortgage debt on the Crowne Plaza Hotel in Macon, Georgia, in which we own a
60% interest that, as of June 25, 2004, had a balance of $6.9 million. Immediately after closing, the Refinancing Debt consisted of a loan of $110 million bearing a
floating rate of interest (the Floating Rate Debt), presently secured by 23 of our hotels (29
hotels at the loans inception), and four loans totaling $260 million, each bearing a fixed
interest rate of 6.58% (the Fixed Rate Debt) and secured, in the aggregate, by 35 of our hotels.
Merrill Lynch Mortgage also has the right to further divide the Refinancing Debt into first
priority mortgage loans and mezzanine loans. Each of the four fixed rate loans (Fixed Rate Loan) comprising the Fixed Rate Debt is a
five-year loan and bears a fixed rate of interest of 6.58%. Except for certain defeasance
provisions, we may not prepay the Fixed Rate Debt except during the 60 days prior to maturity. We
may, after the earlier of 48 months after the closing of any Fixed Rate Debt or the second
anniversary of the securitization of any Fixed Rate Debt, defease such Fixed Rate Debt, in whole or
in part. As a result of a modification in the terms of the Floating Rate Loan as outlined in the
subsequent events note (see Subsequent Events), the Floating Rate Debt has an initial maturity of
January 2007. The Floating Rate Debt is a two-year loan with three one-year extension options and
bears interest at LIBOR plus 3.40%. The first extension option will be available to us only if no
defaults exist and we have entered into the requisite interest rate cap agreement. The second and
third extension options will be available to us only if no defaults exist, a minimum debt yield
ratio of 13% is met, and minimum debt service coverage ratios of 1.3x for the second extension and
1.35x for the third extension are met. An extension fee of 0.25% of the outstanding Floating Rate
Debt is payable if we opt to 14




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exercise each of the second and third extensions. We may prepay the
Floating Rate Debt in whole or in part, subject to a prepayment penalty in the amount of 3% of the
amount prepaid during the first year of the loan and 1% of the amount prepaid during the second
year of the loan. Repayments of debt related to assets held for sale at June 25, 2004, are exempt
from the prepayment penalty. The Refinancing Debt provides that when either (i) the debt yield ratio for the hotels
securing the Floating Rate Debt or any Fixed Rate Loan for the trailing 12-month period is below 9%
during the first year, 10% during the second year and 11%, 12% and 13% during each of the next
three years (in the case of the Floating Rate Debt to the extent extended), or (ii) in the case of
the Floating Rate Debt (to the extent extended), the debt service coverage ratio is less than 1.30x
in the fourth year or 1.35x in the fifth year, excess cash flows produced by the mortgaged hotels
securing the applicable loan (after payment of operating expenses, management fees, required
reserves, service fees, principal and interest) must be deposited in a restricted cash account.
These funds can be used for the prepayment of the applicable loan in an amount required to satisfy
the applicable test, capital expenditures reasonably approved by the lender with respect to the
hotels securing the applicable loan, and scheduled principal and interest payments due on the
Floating Rate Debt of up to $0.9 million or any Fixed Rate Loan of up to $525,000, as applicable.
Funds will no longer be deposited into the restricted cash account when the debt yield ratio and,
if applicable, the debt service coverage ratio are sustained above the minimum requirements for
three consecutive months and there are no defaults. If the Company does not comply with the terms of a franchise agreement, following notice and
an opportunity to cure, the franchisor has the right to terminate the agreement, which could lead
to a default under one or more of its loan agreements and which could materially and adversely
affect the Company. If a franchise agreement is terminated, the Company will either select an
alternative franchisor or operate the hotel independently of any franchisor. However, terminating
or changing the franchise affiliation of a hotel could require the Company to incur significant
expenses, including franchise termination payments and capital expenditures associated with the
change of a brand. Moreover, the loss of a franchise agreement could have a material adverse effect
upon the operations or the underlying value of the hotel covered by the franchise because of the
loss of associated guest loyalty, name recognition, marketing support and centralized reservation
systems provided by the franchisor. Loss
of a franchise agreement may result in a default under, and acceleration of, the related
mortgage debt. In particular, the Company would be in default under the Refinancing Debt if the
Company experiences either:  
    multiple franchise agreement defaults and the continuance thereof beyond
all notice and grace periods for hotels whose allocated loan amounts total 10% or more
of the outstanding principal amount of such Refinancing Debt;
    with regards to the Merrill Lynch Mortgage floating rate refinancing debt
(Floating Rate Debt), either the termination of franchise agreements for more than
two properties or the termination of franchise agreements for hotels whose allocated
loan amounts represent more than 5% of the outstanding principal amount of the floating
rate debt, and such hotels continue to operate for more than five consecutive days
without being subject to replacement franchise agreements;
    with regards to the Merrill Lynch Mortgage fixed rate refinancing debt
(Fixed Rate Debt), either the termination of franchise agreements for more than one
property or the termination of franchise agreements for hotels whose allocated loan
amounts represent more than 5% of the outstanding principal amount of the fixed rate
loan, and such hotels continue to operate for more than five consecutive days without
being subject to replacement franchise agreements; or
    a franchise termination for any hotel currently subject to a franchise
agreement that remains without a franchise agreement for more than six months. A single franchise agreement termination could materially and adversely affect the Companys
revenues, cash flow and liquidity. As of March 31, 2005, our debt yield ratios were above the minimum requirement for the four
Fixed Rate Loans; however, we did not meet the required debt yield ratio with regard to the
Floating Rate Loan. As a result, all excess cash generated by the assets that secure this floating
rate loan may be placed into a restricted cash account, at the option of the lender, and these
restricted funds can be used for prepayment of the loan, capital expenditures, or scheduled
principal and interest payments up to $0.9 million as designated above. Funds will no longer be
retained in the restricted cash account when the debt yield ratio is sustained above the minimum
requirement for three 15




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consecutive months. As of March 31, 2005, the lender had not elected to
invoke the cash trap provision. Accordingly, as of March 31, 2005, no funds were in the restricted
cash account for this purpose. Each loan comprising the Refinancing Debt is non-recourse; however, we have agreed to
indemnify Merrill Lynch Mortgage in certain situations, such as fraud, waste, misappropriation of
funds, certain environmental matters, asset transfers in violation of the loan agreements, or
violation of certain single-purpose entity covenants. In addition, each loan comprising the
Refinancing Debt will become full recourse in certain limited cases such as bankruptcy of a
borrower or Lodgian. During the term of the Refinancing Debt, we will be required to fund, on a
monthly basis, a reserve for furniture, fixtures and equipment equal to 4% of the previous months
gross revenues from the hotels securing each of the respective loans comprising the Refinancing
Debt. Other loan costs incurred as a part of the Refinancing Debt, totaling $5.4 million, were
deferred and are being amortized using the effective yield method over five years for the Fixed
Rate Debt and three years for the Floating Rate Debt. As of March 31, 2005, we were not in compliance with the debt service coverage ratio
requirement of the loan from Column Financial secured by nine of our hotels, primarily due to the
fact that one of the hotels securing this loan (New Orleans Airport Plaza Hotel) is not currently
affiliated with a national brand and is undergoing a major renovation. We have entered into a
franchise agreement with Radisson Hotels International, Inc. to rebrand this property as a Radisson
hotel and expect to complete the renovation and open the hotel as a Radisson during the second
quarter of 2005. The total investment we are making on the renovation of this property and its
rebranding is $5.5 million. In addition, we will be completing capital expenditures of
approximately $8.9 million on three other hotels in this loan pool in 2005 and $0.5 million in 2006
to complete the renovation of one of these hotels. Under the terms of the Column Financial loan agreement until the required DSCR is met, the
lender is permitted to require the borrowers to deposit all revenues from the mortgaged properties
into an account controlled by the lender. The revenues are then disbursed to pay property expenses
in accordance with the loan agreement. The
lender may apply excess proceeds after payment of expenses to additional principal payments.
However, as of May 1, 2005, the lender has not elected to require revenue for these properties to
be deposited into its account. Additionally, as of March 31, 2005, the Company was not in compliance with the debt service
coverage ratio requirement of the loan from Column Financial secured by one of its hotels in
Phoenix, Arizona. The primary reason why the debt service coverage ratio is below the required
threshold is due to the property undergoing an extensive renovation in 2004 in order to convert
from a Holiday Inn Select to a Crowne Plaza. The renovation caused substantial revenue
displacement which, in turn, negatively affected the financial performance of this hotel. Under the
terms of the Column Financial loan agreement until the required DSCR is met, the lender is
permitted to require the borrower to deposit all revenues from the mortgaged property into an
account controlled by the lender. Accordingly, in December 2004, the Company was notified by the
lender that it was not in compliance with the debt service coverage ratio requirement and would
have to establish a restricted cash account whereby all cash generated by the property be deposited
in an account from which all payments of interest, principal, operating expenses and escrows
(insurance, property taxes and ground rent) would be disbursed. The lender may apply excess
proceeds after payment of expenses to additional principal payments. Through our wholly-owned subsidiaries, we owe approximately $10.1 million under industrial
revenue bonds secured by the Holiday Inns Lawrence, Kansas and Manhattan, Kansas hotels. For the
year ended December 31, 2004, the cash flows of the two hotels were insufficient to meet the
minimum debt service coverage ratio requirements. On March 2, 2005, we notified the trustee of the
industrial revenue bonds which finance the Holiday Inns in Lawrence, Kansas and Manhattan, Kansas
that we would not continue to make debt service payments. The Holiday Inn franchise agreements for
both of these hotels expire on August 28, 2005, and each of these properties has a substantial
amount of deferred capital expenditures. The failure to make debt service payments is a default
under the bond indenture and also a default under the ground leases for these properties. The
Company may attempt to restructure the debt on these hotels, but no assurance can be given that a
restructuring will be successful. The failure to make the bond payments subjects these hotels to
foreclosure and we could be obligated pursuant to a partial guaranty of approximately $1.4 million.
In addition, we could be obliged to pay our franchisor liquidated damages in the amount of $0.2
million. We have classified this debt to current liabilities because the debt became callable on
March 2, 2005, when we did not make the March 1, 2005 debt service payment. 16




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Loan approximating $83.5 million, secured by 20 hotels, were
substantially reinstated on their original terms, except for the
extension of certain maturities when the Company emerged from
Chapter 11 in November 2002.
The terms of one other loan, in the amount of $2.5 million and secured by one hotel, were amended
to provide for a new interest rate and a new maturity date. At March 31, 2005, approximately 82.9% of our continuing operations mortgage debt (including
current portion) bears interest at fixed rates and 17.1% bears interest at a floating rate. 7. Commitments and Contingencies  Franchise Agreements and Capital Expenditures We benefit from the superior brand qualities of Crowne Plaza, Holiday Inn, Marriott, Hilton
and other brands. Included in the benefits of these brands are their reputation for quality and
service, revenue generation through their central reservation systems, access to revenue through
the global distribution systems, guest loyalty programs and brand Internet booking sites.
Reservations made by means of these franchisor facilities generally account for approximately 35%
of our total reservations. To obtain these franchise affiliations, we enter into franchise agreements with hotel
franchisors that generally have terms of between 5 and 20 years. The franchise agreements typically
authorize us to operate the hotel under the franchise name, at a specific location or within a
specified area, and require that we operate a hotel in accordance with the standards specified by
the franchisor. As part of our franchise agreements, we are generally required to pay a royalty
fee, an advertising/marketing fee, a fee for the use of the franchisors nationwide reservation
system and certain ancillary charges. Royalty fees generally range from 2.7% to 6.0% of gross room
revenues, advertising/marketing fees generally range from 1.0% to 4.2% of gross room revenues,
reservation system fees
generally range from 1.0% to 2.6% of gross room revenues and club and restaurant fees range
from 0% to 4.5%. In the aggregate, royalty fees, advertising/marketing fees, reservation fees and
other ancillary fees for the various brands under which we operate our hotels range from 5.1% to
11.0% of gross room revenues. These costs vary with revenues and are not fixed commitments. Franchise fees incurred (which
are reported in other hotel operating costs on our Condensed Consolidated Statement of Operations)
for the three months ended March 31, 2005 and March 31, 2004 were as follows: Three Months EndedMarch 31, 2005
    
    
    March 31, 2004($ in thousands)Continuing operation
    
    $
    4,933
    
    
    $
    5,107Discontinued operations
    
    
    424
    
    
    
    732$
    5,357
    
    
    $
    5,839
 During the term of the franchise agreements, the franchisors may require us to upgrade
facilities to comply with their current standards. Our current franchise agreements terminate at
various times and have differing remaining terms. For example, the terms of 13, six and seven of
our franchise agreements are scheduled to expire in 2005, 2006, and 2007, respectively. As
franchise agreements expire, we may apply for a franchise renewal. In connection with renewals, the
franchisor may require payment of a renewal fee, increased royalty and other recurring fees and
substantial renovation of the facilities, or the franchisor may elect not to renew the franchise.
The costs incurred in connection with these agreements are primarily monthly payments due to the
franchisors based on a percentage of gross room revenues. If we do not comply with the terms of a franchise agreement, following notice and an
opportunity to cure, the franchisor has the right to terminate the agreement, which could lead to a
default under one or more of our loan agreements, and which could materially and adversely affect
us. Prior to terminating a franchise agreement, franchisors are required to notify us of the areas
of non-compliance and give us the opportunity to cure the non- 17




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compliance. In the past, we have been
able to cure most cases of non-compliance and most defaults within the cure periods, and those
events of non-compliance and defaults did not cause termination of our franchises or defaults on
our loan agreements. If we perform an economic analysis of the hotel and determine that it is not
economically feasible to comply with a franchisors requirements, we will either select an
alternative franchisor or operate the hotel without a franchise affiliation. However, terminating
or changing the franchise affiliation of a hotel could require us to incur significant expenses,
including liquidated damages, and capital expenditures. Our loan agreements generally prohibit a
hotel from operating without a franchise. As of May 1, 2005, we have been notified that we were not in compliance with some of the terms
of seven of our franchise agreements and have received default and termination notices from
franchisors with respect to an additional seven hotels summarized as follows:  a)
    Two of these hotels are held for sale;b)
    Seven of the remaining hotels either just completed a major renovation, are
undergoing a major renovation or a major renovation is planned. The total cost of the
renovations is projected to be $22.3 million of which $10.6 million has been spent;c)
    One of the remaining hotels has a franchise agreement that expires in 2005 and
is expected to be renovated upon selection of a new franchise. The total cost of the
renovation will not be known until the franchisor inspects the property;d)
    One of the remaining hotels is now in full compliance and is awaiting its cure
letter; ande)
    Three of the remaining hotels are currently above the required franchise
thresholds. Two of these hotels must remain above those levels until February 2006 to
receive a clean slate letter, and the other hotel must remain above those levels
until July 2005 to receive a clean slate letter. We cannot be certain that we will be able to complete our action plans, which in aggregate are
estimated to cost approximately $8.0 million, of which $1.3 million is reserved with our lenders,
to cure the alleged defaults prior to the specified termination dates or any extended time granted
to cure any defaults. We believe we are in compliance with our other franchise agreements in all
material aspects. While we can give no assurance that the steps taken to date, and planned to be
taken the balance of 2005, will return the properties to full compliance, we believe that we will
make significant progress and we intend to continue to give franchise agreement compliance a high
level of attention. The 14 hotels that are either in default or non-compliance under the
respective franchise agreement are part of the collateral security for $337.9 million of mortgage
debt at May 1, 2005, due to cross-collateralization provisions. In addition, as part of our bankruptcy reorganization proceedings, we entered into
stipulations with each of our major franchisors setting forth a timeline for completion of capital
expenditures for some of our hotels. However, as of May 1, 2005, we have not completed the required
capital expenditures for 18 hotels in accordance with the stipulations and estimate that completing
those improvements will cost $9.4 million of which $5.2 million is reserved with our lenders. Under
the stipulations, the applicable franchisors could therefore seek to declare certain franchise
agreements in default and, in certain circumstances, seek to terminate the franchise agreement. We
have scheduled or have begun renovations on 15 of these hotels aggregating $8.3 million of the $9.4
million. In addition, one of these hotels is held for sale and represents $0.3 million of the $9.4
million. In March 2005, we entered into letter agreements with IHG for our Holiday Inns in
Strongsville, OH, Monroeville, PA and Washington-Meadowlands, PA which extend the deadline for us
to complete renovations on these hotels. The letter agreements require us to complete various
phases of the renovations by agreed upon milestone dates. The capital expenditures related to
these three hotels total $10.7 million, $3.5 million of which is reserved with our lenders. The
agreed upon completion date for these three hotels is October 31, 2005, and we are subject to
monetary penalties if we do not comply with the agreed upon milestone and completion dates. In
addition, IHG may elect to terminate the franchise agreements for these three hotels if the
renovations have not been completed, and in the event of a termination, we may be subject to
liquidated damages. We anticipate that we will be able to meet these milestone and completion
deadlines . During 2004, we entered into new franchise agreements for all 15 of our Marriott-branded
hotels at that time and agreed to pay a fee aggregating approximately $0.5 million, of which $0.1
million has been paid, and $0.4 million is payable in 2007, subject to offsets. In connection with
our agreement, Marriott may review the capital improvements we have made at our Marriott franchised
hotels during 2004, and may, in its reasonable business 18




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judgment, require us to make additional
property improvements and to place amounts into a reserve account for the purpose of funding those
property improvements. To comply with the requirements of our franchisors, to improve our competitive position in
individual markets, and repair hurricane damaged hotels, we plan to
spend $88.9 million on our
hotels in 2005, which includes committed hurricane repair capital expenditures of approximately
$43.7 million, much of which we anticipate will be covered by insurance proceeds. This will
substantially complete all of our deferred renovations. We spent $35.2 million on capital
expenditures during 2004 on our continuing operations hotels.  Letters of Credit As of March 31, 2005, we had one irrevocable letter of credit totaling $3.4 million
outstanding, fully collateralized by our cash (classified as restricted cash in the accompanying
Condensed Consolidated Balance Sheets), as a guarantee to Zurich American Insurance Company. This
letter of credit will expire in November 2005 but may require renewal beyond that date.  Self-insurance We are self-insured up to certain limits with respect to employee medical, employee dental,
property insurance, general liability insurance, workers compensation, auto liability and other
forms of insurance. We establish liabilities for these self-insured obligations annually, based on
actuarial valuations and our history of claims. Should
unanticipated events cause these claims to escalate beyond normal expectations, our financial
condition and results of operations would be negatively affected. As of March 31, 2005, and
December 31, 2004, we had approximately $11.6 million and $11.4 million accrued for these
liabilities, respectively. There are other types of losses for which we cannot obtain insurance at all or at a reasonable
cost, including losses caused by acts of war. If an uninsured loss or a loss that exceeds our
insurance limits were to occur, we could lose both the revenues generated from the affected hotel
and the capital that we have invested. We also could be liable for any outstanding mortgage
indebtedness or other obligations related to the hotel. Any such loss could materially and
adversely affect our financial condition and results of operations. We believe that we maintain sufficient insurance coverage for the operation of our business.  Casualty losses During August and September 2004, eight of our hotels were damaged (six extensively) from the
hurricanes that made landfall in the Southeastern United States. Two of the hotels (Crowne Plaza
West Palm Beach and Holiday Inn Melbourne) remain closed. The Crowne Plaza West Palm Beach and the
Holiday Inn Melbourne hotels are expected to reopen in the 2005 third and fourth quarters,
respectively. All properties in our portfolio are covered by property casualty and business
interruption insurance. With regard to physical property damage, we are recognizing repair expenses related to
hurricane damage as we incur them. We have also written off the net book value (NBV) of the
assets that were destroyed by the hurricane. As the combined repair expenses and NBV write-offs
exceed the relevant insurance deductibles, we have recorded a receivable from the insurance
carriers. For the three months ended March 31, 2005, we incurred $0.1 million in hurricane repair
charges as we determined we will be subject to another $0.1 million in deductible costs. Hurricane
costs incurred to date (including costs incurred September 2004 to December 2004) total $1.9
million for hurricane repair costs, $3.7 million written off in NBV of destroyed assets, and we
have recorded a $3.2 million receivable due from the insurance company for amounts that exceed the
deductibles, which results in a cumulative $2.4 million casualty loss as a result of the
hurricanes. In the first quarter 2005, $15.8 million was released from our insurance carrier
($17.8 million in total) as advances for repairs on our Crowne Plaza West Palm Beach, Holiday Inn
Melbourne, Holiday Inn Winter Haven, Holiday Inn Express Pensacola and Holiday Inn Pensacola
University Mall hotels. All advances are forwarded to our lenders from which we receive
reimbursements as we incur hurricane-repair and capital expenditures.
For the three months ended March 31, 2005, we received $5.2 million from our lenders for hurricane
related reimbursements. Cumulatively, since September 2004 19




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when the first hurricane losses
occurred through March 31, 2005, we have received $6.6 million from our lenders for
hurricane-related reimbursements. We have filed business interruption claims for both hotels for the September through December
2004 period and for the January 2005 through March 2005 period. Business interruption claims
submitted for the 2004 period totaled $2.1 million and for the first three months of 2005 totaled
$3.2 million. None of these amounts have been included in our financial statements, because
consistent with GAAP, these amounts cannot be recognized until settled or received.  Litigation From time to time, as we conduct our business, legal actions and claims are brought against
us. The outcome of these matters is uncertain. However, we believe that all currently pending
matters will be resolved without a material adverse effect on our results of operations or
financial condition. Claims relating to the period before we filed for Chapter 11 protection are
limited to the amounts approved by the Bankruptcy Court for settlement of such claims and are
payable out of a reserve for allowed claims as recorded on our balance sheet. On July 26, 2004, the
Preferred Stock was redeemed and cash of $2.2 million replaced the Preferred Stock shares held in
the disputed claims reserve. Accordingly, as of March 31, 2005, a $2.2 million accrual is recorded
in other accrued liabilities for these claims. We have reserved for all claims approved by the
Bankruptcy Court which have not yet been paid. 8. New Accounting Pronouncements On December 16, 2004, the FASB issued Statement of Financial Accounting Standards (SFAS) No.
153, Exchanges of Nonmonetary Assets  An Amendment of APB Opinion No. 29 (SFAS No. 153). The
amendments made by SFAS No. 153 are based on the principle that exchanges of nonmonetary assets
should be measured based on the fair value of the assets exchanged. Further, the amendments
eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace
it with a broader exception for exchanges of nonmonetary assets that do not have commercial
substance. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005. The Company does not believe that the adoption of SFAS No. 153 on
June 15, 2005 will have a material effect on the Companys consolidated financial statements. 9. Related Party Transactions Oaktree and Blackstone, representatives of which serve on our board of directors, and/or
affiliates received 2,262,661 shares and 1,049,034 shares of common stock that were exchanged as
part of the Preferred Share Exchange in June 2004. Approximately $26.3 million and $11.1 million of the net
proceeds from the common stock offering were used to redeem the remaining shares of Preferred Stock
held by Oaktree and Blackstone, respectively. Including the Preferred Share Exchange shares,
Oaktree and Blackstone are currently the beneficial owners of 2,817,577 and 1,326,909 shares of our
common stock, respectively. Until May 1, 2004, we had a revolving loan agreement with OCM Fund II that allowed us to
borrow up to $2 million; however, all of our borrowings under that agreement were repaid in full in
December 2003. The interest rate on the loan was 10% per annum, and in 2003 we paid $42,222 in
interest to OCM Fund II on our borrowings. This revolving loan agreement was secured by two land
parcels and expired on May 1, 2004. OCM Fund II is a greater than 10% stockholder, and Oaktree is
the general partner of OCM Fund II. Russel S. Bernard, a principal of Oaktree and Sean F.
Armstrong, a managing director of Oaktree, are directors of Lodgian. 10. Subsequent Events Joint Venture Buyout On April 18, 2005, we acquired our joint venture partners 40% interest in the Crowne Plaza
hotel located in Macon, Georgia. The acquisition price was $0.7 million and was paid in cash at
closing. We now have a 100% ownership interest in this property. Amendment to Merrill Lynch Floating Rate Loan 20




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On April 29, 2005, we entered into an amendment with Merrill Lynch to modify certain of the
provisions of the Floating Rate Loan. Under the terms of the amendment, Merrill Lynch agreed to
allow the release of the Holiday Inn St. Louis, Missouri as collateral under the loan in exchange
for payment of $4.8 million for debt pay down. Approximately $2.6 million of the release price was
paid through the release of certain reserves held on other properties which were recently sold or
are expected to be sold in the near future. We paid the balance of the release price,
approximately $2.2 million, from our cash balances. In addition to the release of the St. Louis
property from the collateral pool, the amendment provided for the following:  
    Extension of the initial maturity from June 30, 2006 to January 11, 2007. We
still maintain the option, subject to certain conditions, to extend the loan for up
to three years from the new initial maturity date in January 2007;
    Once the Holiday Inn Select in Niagara Falls, New York is sold, three additional
properties in the floating rate pool will be classified as sale properties. Once
classified as sale properties, these hotels will be able to be released from the
collateral pool by payment of the greater of (a) 100% of the aggregate allocated
loan amount (lowered from 125%) and (b) the net sales proceeds of the property;
    The prepayment penalty, which is currently 3% and will drop to 1% in July 2005,
has been further reduced for the three additional sale properties after July 2005
to 0.5%;
    If we sell the Holiday Inn Select in Niagara Falls, New York by June 30, 2005,
Merrill Lynch will be required to purchase an interest rate cap agreement with a
LIBOR strike price of 6% which would be effective from the initial maturity date of
June 30, 2006 to January 11, 2007. We will be required to purchase an interest
rate cap agreement should we elect to extend the maturity of the loan past January
2007 with a LIBOR strike price of 6%, which is an increase of 100 basis points from
the requirement in the original loan agreement; and
    Certain required capital and environmental repairs under the original Floating
Rate Loan have been determined not to be necessary and have been removed as
requirements under the loan. Had this amendment been in effect as of March 31, 2005, we would have been in compliance with
the debt yield covenant under the Floating Rate Loan. 
 Item 2.Managements Discussion and Analysis of Financial Condition and Results of
Operations You should read the discussion below in conjunction with the unaudited condensed consolidated
financial statements and accompanying notes, set forth in Item I. Financial Statements included
in thisForm 10-Q. Also, the discussion which follows contains forward-looking statements which
involve risks and uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of various factors, including those discussed in
ourForm 10-Kfor the year ended December 31, 2004. Executive Overview We are one of the largest independent owners and operators of full-service hotels in the
United States in terms of our number of guest rooms and gross annual revenues, as reported by Hotel
Business in the 2005 Green Book issue published in December 2004. We are considered an independent
owner and operator because we do not operate our hotels under our own name. We operate
substantially all of our hotels under nationally recognized brands, such as Crowne Plaza,
Holiday Inn, Marriott, and Hilton. As of May 1, 2005, we operated 83 hotels with an
aggregate of 15,681 rooms, located in 31 states and Canada. Of the 83 hotels, 76 hotels, with an
aggregate of 13,718 rooms, are part of our continuing operations, while seven hotels, with an
aggregate of 1,963 rooms are held for sale and classified in discontinued operations. Three of the
seven hotels with an aggregate 736 rooms were identified for sale in January 2005. Our current
portfolio of 83 hotels consists of:  
    78 hotels that we wholly own and operate through subsidiaries; 21




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
    four hotels that we operate in joint ventures in which we have a 50% or greater voting
equity interest and exercise control (see subsequent events for discussion of the buyout of
the joint venture partner at one of these hotels); and
    one hotel that we operate in a joint venture in which we have a 30% non-controlling
equity interest. We consolidate all of these hotels in our financial statements, other than the one hotel in
which we hold a minority interest and which we account for under the equity method. During 2003, we developed a portfolio improvement strategy which was consistent with our goals
of operating a portfolio of profitable, well-maintained and appealing hotels at superior locations
in strong markets. In accordance with this strategy and our efforts to reduce debt and interest
costs, we identified 19 hotels, one office building and three land parcels for sale. In January
2005, we identified three additional hotels as held for sale. Between November 1, 2003 and March
31, 2005, we sold the office building, 15 of the 22 hotels and two of the three land parcels. As
of May 1, 2005, our portfolio consisted of 83 hotels, 76 of which represent our continuing
operations portfolio (including one hotel in which we have a non-controlling equity interest and
which we do not consolidate). Overview of Continuing Operations Below is an overview of our results of operations, which are presented in more detail in
Results of Operations  Continuing Operations:  
    Revenues decreased primarily due to displacement at the two hotels closed for hurricane
renovations, three other hotels damaged by the hurricanes and eight hotels under renovation
during the quarter. We saw improvements in ADR and RevPAR as compared to the same period
in 2004 with negative growth in occupancy as a result of our on-going renovation program.
    Operating expenses, including direct hotel and other operating expenses, increased $0.4
million in the first quarter 2005 as compared to the first quarter 2004 primarily as a
result of an increase in vacation costs as we revised our process to give us better
information to track vacation time for our associates. Corporate overhead expenses
increased due to higher costs for professional fees and severance costs. We recorded
additional expenses related to the hurricanes as we will be subject to another $0.1 million
deductible.
    Interest expense was lower as we capitalized more interest due to our renovation program
and deferred loan cost amortizations were lower due to the loan refinance in June 2004.
    Net loss attributable to common stock was $7.1 million for the first quarter 2005
compared with $7.1 million for the first quarter 2004. Overview of Discontinued Operations As discussed above, during 2003, we identified 19 hotels, one office building and three land
parcels for sale as part of our portfolio improvement strategy and our efforts to reduce debt and
interest costs. In January 2005 we identified three additional hotels as held for sale.
Between November 1, 2003 and May 1, 2005, we sold fifteen of the nineteen hotels, the office
building, and two of the three land parcels. Summarized below is certain financial data related to
the fifteen hotels, the office building, and two land parcels sold between November 1, 2003 and May
1, 2005: (Unaudited in thousands)Aggregate sales price
    
    $
    66,785Debt pay down (principal only)
    
    $
    51,486
 In accordance with SFAS No. 144, we have included the hotel assets sold during 2004 and 2005
as well as the hotel assets held for sale at March 31, 2005 (including any related impairment
charges) in Discontinued Operations 22




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in the Consolidated Statement of Operations. The assets held
for sale at March 31, 2005 and December 31, 2004 and the liabilities related to these assets are
separately disclosed in the Condensed Consolidated Balance Sheets. Where the carrying values of the
assets held for sale exceeded the estimated fair values, net of selling costs, we reduced the
carrying values and recorded impairment charges. We determine fair values using quoted market
prices, when available, or other accepted valuation techniques. During the three months ended March
31, 2005, we recorded impairment charges of $1.9 million on assets held for sale. Where the
estimated selling prices, net of selling costs, of assets held for sale exceeded the carrying
values, we did not increase the carrying values of the assets. Among other criteria, we classify an
asset as held for sale if we expect to dispose of it within one year. While we believe that the completion of these dispositions is probable, the sale of these
assets is subject to market conditions and we cannot provide assurance that we will finalize the
sale of all or any of these assets on favorable terms or at all. We believe that all our held for
sale assets as of March 31, 2005 remain properly classified in accordance with SFAS No. 144. The results of operations of the other 75 hotels that we consolidate in our financial
statements are reported in continuing operations. Our continuing operations reflect the results of
operations of those hotels which we plan to retain in our portfolio for the foreseeable future. Critical Accounting Policies and Estimates Our financial statements are prepared in accordance with GAAP. As we prepare our financial
statements, we make estimates and assumptions which 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. Actual
results could differ from our estimates. A summary of our significant accounting policies is
included in Note 1 of the notes to our consolidated financial statements included in our Annual
Report on Form 10-K for the year ended December 31, 2004. Also, our critical accounting policies
and estimates are discussed in our Annual Report on Form 10-K for the year ended December 31, 2004,
and we believe no changes have occurred. Income Statement Overview The discussion below focuses primarily on our continuing operations. In the continuing
operations discussions, we compare the results of operations for the 75 consolidated hotels which
we plan to retain in our portfolio for the foreseeable future, for the three months ended March 31,
2005 and March 31, 2004. See Managements Discussion and Analysis of Financial Condition and
Results of Operations  Income Statement Overview in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2004 for a general description of the categorization of our revenues and
expenses. Three Months Ended March 31, 2005 (First Quarter 2005) Compared to the Three Months Ended March
31, 2004 (First Quarter 2004) Results of Operations  Continuing Operations First Quarter 2005 Compared to First Quarter 2004 Revenues  Continuing Operations 23




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##### Table of Contents



Three months endedMarch 31, 2005
    
    
    March 31, 2004
    
    
    Increase (decrease)Revenues ($ in
thousands):Rooms
    
    $
    54,461
    
    
    $
    56,050
    
    
    $
    (1,589
    )
    
    
    (2.8
    )%Food and beverage
    
    
    14,901
    
    
    
    16,227
    
    
    
    (1,326
    )
    
    
    (8.2
    )%Other
    
    
    2,492
    
    
    
    2,701
    
    
    
    (209
    )
    
    
    (7.7
    )%Total revenues
    
    $
    71,854
    
    
    $
    74,978
    
    
    $
    (3,124
    )
    
    
    (4.2
    )%Occupancy
    
    
    58.5
    %
    
    
    60.2
    %
    
    
    
    
    
    
    (2.8
    )%ADR
    
    $
    79.73
    
    
    $
    76.56
    
    
    $
    3.17
    
    
    
    4.1
    %RevPAR
    
    $
    46.68
    
    
    $
    46.06
    
    
    $
    0.62
    
    
    
    1.3
    %
 First quarter 2005 revenues decreased 4.2% primarily due to the continued closure of two
hotels (Crowne Plaza West Palm Beach and Holiday Inn Melbourne), displacement related to
renovations at three other hurricane damaged hotels and displacement at eight other hotels
undergoing renovation during the quarter. Displacement refers to lost revenue and profit due to
rooms out of order resulting from renovation or hurricane repairs. First quarter 2004 room
revenues for the Crowne Plaza West Palm Beach and Holiday Inn Melbourne were $3.6 million, food and
beverage revenues were $1.0 million and other revenues were $0.1 million, for a total of $4.8
million decrease in revenues year over year. First quarter 2005 total revenue displacement,
primarily consisting of room revenue displacement, for the three other hurricane-damaged hotels was
$0.1 million. The eight hotels under renovation resulted in $0.8 million of displaced room
revenues and $1.1 million in total revenues. Accordingly, for the three months ended March 31,
2005, room revenue displacement for the hurricane-damaged or closed hotels and hotels under
renovation was $4.6 million and total revenue displacement was $6.0 million. Below is a chart that shows our occupancy, ADR, RevPAR and RevPAR Index (market share) for our
continuing operations hotels. To illustrate the impact of the two hotels closed due to hurricane
damage, the impact of renovations underway and completed, and the impact of branding, we have
adjusted this information into seven different subsets. These subsets indicate that our Marriott
and Hilton branded hotels outperform our IHG branded hotels. In addition, these subsets indicate
that where we have recently completed a major renovation, we see an increase in RevPAR that is
greater then the average increase for all of our continuing operations hotels. 24




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Hotel
    
    Room
    
    
    
    Three Months EndedCount
    
    Count
    
    
    
    March 31, 2005
    
    March 31, 2004
    
    Increase (decrease)75
    
    
    13,478
    
    
    All Continuing OperationsOccupancy
    
    
    58.5
    %
    
    
    60.2
    %
    
    
    
    
    
    
    (2.7
    )%ADR
    
    $
    79.73
    
    
    $
    76.56
    
    
    $
    3.17
    
    
    
    4.1
    %RevPAR
    
    $
    46.68
    
    
    $
    46.06
    
    
    $
    0.62
    
    
    
    1.3
    %73
    
    
    12,964
    
    
    Continuing Operations less two
hotels closed due to hurricane
damageOccupancy
    
    
    58.5
    %
    
    
    59.3
    %
    
    
    
    
    
    
    (1.3
    )%ADR
    
    $
    79.74
    
    
    $
    75.32
    
    
    $
    4.42
    
    
    
    5.9
    %RevPAR
    
    $
    46.68
    
    
    $
    44.67
    
    
    $
    2.01
    
    
    
    4.5
    %RevPAR index
    
    
    100.4
    %
    
    
    101.8
    %
    
    
    (1.4
    )
    
    
    (1.4
    )%65
    
    
    11,148
    
    
    Continuing Operations less two
hotels closed due to hurricane
damage and hotels under
renovations in the first
quarters of
2004 and 2005Occupancy
    
    
    58.0
    %
    
    
    58.1
    %
    
    
    
    
    
    
    (0.2
    )%ADR
    
    $
    77.59
    
    
    $
    73.58
    
    
    $
    4.02
    
    
    
    5.5
    %RevPAR
    
    $
    44.99
    
    
    $
    42.72
    
    
    $
    2.26
    
    
    
    5.3
    %RevPAR index
    
    
    102.6
    %
    
    
    103.2
    %
    
    
    (0.6
    )
    
    
    (0.6
    )%21
    
    
    3,013
    
    
    Hotels completing major
renovations in 2003 and 2004Occupancy
    
    
    69.2
    %
    
    
    68.2
    %
    
    
    
    
    
    
    1.5
    %ADR
    
    $
    89.97
    
    
    $
    83.66
    
    
    $
    6.31
    
    
    
    7.5
    %RevPAR
    
    $
    62.24
    
    
    $
    57.04
    
    
    $
    5.20
    
    
    
    9.1
    %RevPAR index
    
    
    113.9
    %
    
    
    109.8
    %
    
    
    4.1
    
    
    
    3.7
    %16
    
    
    1,845
    
    
    Marriott HotelsOccupancy
    
    
    67.0
    %
    
    
    65.0
    %
    
    
    
    
    
    
    3.0
    %ADR
    
    $
    85.80
    
    
    $
    81.09
    
    
    $
    4.71
    
    
    
    5.8
    %RevPAR
    
    $
    57.48
    
    
    $
    52.74
    
    
    $
    4.74
    
    
    
    9.0
    %RevPAR index
    
    
    124.5
    %
    
    
    122.1
    %
    
    
    2.4
    
    
    
    2.0
    %4
    
    
    777
    
    
    Hilton HotelsOccupancy
    
    
    61.0
    %
    
    
    58.5
    %
    
    
    
    
    
    
    4.3
    %ADR
    
    $
    94.45
    
    
    $
    88.12
    
    
    $
    6.33
    
    
    
    7.2
    %RevPAR
    
    $
    57.63
    
    
    $
    51.57
    
    
    $
    6.07
    
    
    
    11.8
    %RevPAR index
    
    
    99.5
    %
    
    
    91.8
    %
    
    
    7.7
    
    
    
    8.4
    %46
    
    
    8,956
    
    
    IHG Hotels less two hotels
closed
due to hurricane damageOccupancy
    
    
    59.5
    %
    
    
    60.3
    %
    
    
    
    
    
    
    (1.3
    )%ADR
    
    $
    78.44
    
    
    $
    74.69
    
    
    $
    3.75
    
    
    
    5.0
    %RevPAR
    
    $
    46.67
    
    
    $
    45.04
    
    
    $
    1.63
    
    
    
    3.6
    %RevPAR index
    
    
    99.5
    %
    
    
    101.8
    %
    
    
    (2.3
    )
    
    
    (2.3
    )%7
    
    
    1,386
    
    
    Other Brands and Independent
HotelsOccupancy
    
    
    39.8
    %
    
    
    45.7
    %
    
    
    
    
    
    
    (13.1
    )%ADR
    
    $
    66.02
    
    
    $
    60.59
    
    
    $
    5.43
    
    
    
    9.0
    %RevPAR
    
    $
    26.25
    
    
    $
    27.72
    
    
    ($
    1.47
    )
    
    
    (5.3
    )%RevPAR index
    
    
    74.5
    %
    
    
    79.1
    %
    
    
    (4.6
    )
    
    
    (5.8
    )%
 25




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##### Table of Contents



Direct operating expenses  Continuing Operations Three months endedMarch 31, 2005
    
    
    March 31, 2004
    
    
    Increase (decrease)($ in thousands)Direct operating expenses:Rooms
    
    $
    15,494
    
    
    $
    15,457
    
    
    $
    37
    
    
    
    0.2
    %Food and beverage
    
    
    10,982
    
    
    
    11,289
    
    
    
    (307
    )
    
    
    (2.7
    )%Other
    
    
    1,930
    
    
    
    1,931
    
    
    
    (1
    )
    
    
    (0.1
    )%Total direct operating expenses
    
    $
    28,406
    
    
    $
    28,677
    
    
    $
    (271
    )
    
    
    (0.9
    )%% of total revenues
    
    
    39.5
    %
    
    
    38.3
    %
 Direct operating expenses were 0.9% lower than in 2004 but as a percentage of revenues
increased to 39.5% from 38.2%. Room expenses on a cost per occupied room (POR) basis was $22.68 in
the first quarter 2005 as compared to $21.11 in the first quarter 2004. Room payroll and related
benefits, on an actual POR basis, were $14.16 in the first quarter 2005 as compared to $13.46 in
2004. Other rooms expenses, on an actual POR basis, were $8.52 in the first quarter 2005 as
compared to $7.65 in 2004, partially due to increased costs in linen expense resulting from
upgraded linen packages mandated by certain brands. Guest and operating supplies along with guest
loyalty expenses also increased. Food and beverage expenses decreased $0.3 million or 2.7% as a
result of decreased revenues. Other operating expenses  Continuing Operations Three months endedMarch 31, 2005
    
    
    March 31, 2004
    
    
    Increase (decrease)($ in thousands)Other operating expenses:Other hotel operating costs:General and administrative
    
    $
    5,650
    
    
    $
    5,195
    
    
    $
    455
    
    
    
    8.8
    %Advertising and promotion
    
    
    4,054
    
    
    
    3,886
    
    
    
    168
    
    
    
    4.3
    %Franchise fees
    
    
    4,933
    
    
    
    5,107
    
    
    
    (174
    )
    
    
    (3.4
    )%Repairs and maintenance
    
    
    4,192
    
    
    
    4,241
    
    
    
    (49
    )
    
    
    (1.2
    )%Utilities
    
    
    4,976
    
    
    
    4,786
    
    
    
    190
    
    
    
    4.0
    %Other expenses
    
    
    95
    
    
    
    (21
    )
    
    
    116
    
    
    
    (552.4
    )%Total other hotel operating costs
    
    $
    23,900
    
    
    $
    23,194
    
    
    $
    706
    
    
    
    3.0
    %Property and other taxes,
insurance and leases
    
    $
    5,690
    
    
    $
    5,561
    
    
    $
    129
    
    
    
    2.3
    %Corporate and other
    
    
    4,658
    
    
    
    4,335
    
    
    
    323
    
    
    
    7.5
    %Casualty losses
    
    
    104
    
    
    
    
    
    
    
    104
    
    
    
    n/mDepreciation and amortization
    
    
    6,658
    
    
    
    6,671
    
    
    
    (13
    )
    
    
    (0.2
    )%Impairment of long-lived assets
    
    
    1,655
    
    
    
    
    
    
    
    1,655
    
    
    
    n/mTotal other operating expenses
    
    $
    42,665
    
    
    $
    39,761
    
    
    $
    2,904
    
    
    
    7.3
    %% of total revenues
    
    
    59.4
    %
    
    
    53.0
    %
 Other hotel operating costs increased $0.7 million or 3.0% in the first quarter 2005 as
compared to the same period in 2004 due to the following:  
    Hotel administration costs increased $0.5 million or 8.8% primarily as a result of an
increase in vacation pay accruals; and
    Utilities increased $0.2 million or 4.0% as a result of the increases in usage and
rates. Corporate and other costs increased $0.3 million or 7.5% primarily due to severance costs and
other professional fees. Impairment of long-lived assets charges of $1.7 million represents the $0.1 million write-off
of the net book value of assets that were replaced in the first quarter 2005 and a $1.6 million
impairment charge on the Holiday Inn Lawrence hotel due to a reduced fair value appraisal on this
hotel. 26




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##### Table of Contents



Non-operating income (expenses)  Continuing Operations Three months endedMarch 31, 2005
    
    March 31, 2004
     
    Increase (decrease)($ in thousands)Non-operating income (expenses):Interest income and other
    
    $
    171
    
    
    $
    43
    
    
    $
    128
    
    
    
    297.7
    %Interest expense and other
financing costs:Preferred Stock dividend
    
    
    
    
    
    
    (4,285
    )
    
    
    4,285
    
    
    
    (100.0
    )%Interest expense
    
    
    (6,983
    )
    
    
    (8,024
    )
    
    
    1,041
    
    
    
    (13.0
    )%Minority interests
    
    
    (145
    )
    
    
    147
    
    
    
    (292
    )
    
    
    (198.6
    )%
 The Preferred Stock dividend relates to the 12.25% dividend on the Preferred Stock issued on
November 25, 2002. Preferred Stock dividend expense is zero in the first quarter 2005 as the
Preferred Stock was redeemed in its entirety on July 26, 2004. Interest expense decreased $1.0 million for the first quarter 2005 as compared to the same
period in 2004 because $0.4 million more of interest was capitalized in the first quarter 2005 as
compared to the first quarter of 2004. Additionally, loan fee amortization, which is recorded as
interest expense, decreased $0.4 million in the first quarter of 2005 as compared to 2004 as a
result of the mortgage refinance that was closed in June 2004. Minority interests represent the third party owners share of the net income or loss of the
four joint ventures in which we have a controlling equity interest. The $0.3 million decrease in
minority interest adjustment was primarily the result of one of our joint venture hotels being
closed for hurricane repair in the first quarter of 2005. Results of Operations  Discontinued Operations During the first quarter 2005, we sold three hotels for a gross sales price of $9.5 million
and used the net proceeds for debt pay down of $9.1 million. In 2004, we sold 11 hotels,
comprising an aggregate 2,076 rooms, and two land parcels. The aggregate net proceeds from the
sales were approximately $40.9 million of which $37.4 million was used to pay down debt and the
balance was used for capital expenditures and general corporate purposes. The aggregate gain from
the sale of these assets was $9.2 million. Impairment was recorded on assets held for sale in the first quarter 2005 and the first quarter
2004. The $1.9 million impairment of long-lived assets held for sale recorded in the first quarter
2005 represents the write-down of four hotels and one land parcel held for sale, the net book value
of assets held for sale that were replaced in the first quarter 2005 and adjustments to recapture
previously recorded impairment on two hotels. The fair values of the assets held for sale are
based on the estimated selling prices less estimated costs to sell. We determine the estimated
selling prices in conjunction with our real estate brokers. The estimated selling costs are based
on our experience with similar asset sales. We record impairment charges and write down respective
hotel asset carrying values if their carrying values exceed the estimated selling prices less costs
to sell. As a result of these evaluations, during the first quarter of 2005, we recorded impairment
losses as follows:  a)
    an additional $0.3 million on the Holiday Inn Express Gadsden, AL to reflect the
estimated selling costs of this sale as this hotel was identified for sale in January 2005
and to reflect the write-off of capital improvements spent on this hotel for franchisor
compliance that did not add incremental value or revenue generating capacity to the
property;b)
    an additional $1.0 million on the Holiday Inn Rolling Meadows, IL to reflect the
lowered estimated selling price of the hotel;c)
    an additional $0.3 million on the Holiday Inn Morgantown, WV to reflect the reduced
selling price and the additional charges to dispose of this hotel in February 2005; and 27




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##### Table of Contents



d)
    an additional $0.4 million on the Mt. Laurel, NJ land parcel to reflect the lowered
estimated selling of the land parcel. The impairment of long-lived assets held for sale of $2.2 million recorded in first quarter
2004 represents the write-down of five hotels held for sale. As a result of these evaluations,
during the first quarter of 2004 we recorded impairment losses as follows:  a)
    $0.1 million on the Holiday Inn Express Pensacola, FL to record the loss on sale as
this hotel was sold in March 2004;b)
    $0.3 million on the Downtown Plaza Hotel Cincinnati, OH as this hotel was listed for
sale in the second quarter 2003. Impairment was recorded to adjust for the further
reduction in the estimated selling price of this hotel; andc)
    $1.7 million on the Holiday Inn Rolling Meadows, IL as this hotel was identified for
sale in the second quarter 2003. Impairment was recorded to adjust for the further
reduction in the estimated selling price of the hotel. Income taxes At December 31, 2004, we had available net operating loss carryforwards of approximately $314
million for federal income tax purposes, including an estimated current year tax loss of $75
million, which will expire in 2005 through 2024. The recently concluded equity offering resulted
in an Internal Revenue Code (IRC) Section 382 change, limiting the Companys ability to utilize
these losses. As a result of the application of IRC Section 382, our ability to use these net
operating loss carryforwards is subject to an annual limitation of approximately $8.3 million. Due
to these and other limitations, a portion or all of the net operating loss carryforwards could
expire unused. At December 31, 2004, we established a valuation allowance of $145.2 million to
fully offset our net deferred tax asset. EBITDA We use earnings before interest, taxes, depreciation and amortization (EBITDA) to measure
our performance and to assist us in the assessment of hotel property values. EBITDA is also a
widely-used industry measure. However, EBITDA is a non-GAAP measure and should not be used as a
substitute for measures such as net income (loss), cash flows from operating activities, or other
measures computed in accordance with GAAP. Depreciation, amortization and impairment are
significant non-cash expenses for us as a result of the high proportion of our assets which are
long-lived, including property, plant and equipment. We depreciate property, plant and equipment
over their estimated useful lives and amortize deferred financing and franchise fees over the term
of the applicable agreements. Preferred stock dividends are treated as interest expense and,
hence, are added back to loss from continuing operations to derive EBITDA. We also believe that
EBITDA provides pertinent information to investors and is an additional indicator of our operating
performance. The following table presents EBITDA from continuing operations, a non-GAAP measure, for the
three months ended March 31, 2005 and March 31, 2004, and provides a reconciliation with the loss
from continuing operations, a GAAP measure: 28




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##### Table of Contents



Three Months EndedMarch 31, 2005
    
    
    March 31, 2004($ in thousands)Continuing operations:Loss from continuing operations
    
    $
    (5,951
    )
    
    $
    (5,949
    )Depreciation and amortization
    
    
    6,658
    
    
    
    6,671Interest income
    
    
    (220
    )
    
    
    (48
    )Interest expense
    
    
    6,983
    
    
    
    8,024Preferred stock dividends
    
    
    
    
    
    
    4,285Provision for income taxes  continuing operations
    
    
    67
    
    
    
    76EBITDA from continuing operations
    
    $
    7,537
    
    
    $
    13,059
 Loss from continuing operations, and accordingly, EBITDA from continuing operations, is after
deducting the following items: Three Months EndedMarch 31, 2005
    
    
    March 31, 2004($ in thousands)Post-emergence Chapter 11 expenses, included in corporate and
other on our consolidated statement of operations
    
    $
    110
    
    
    $
    195Impairment loss
    
    
    1,655
    
    
    
    Casualty losses - 2004 hurricane damage
    
    
    104
    
    
    
    
 Additional Financial Information Regarding Quarterly Results of Our Continuing Operations The following table presents certain quarterly data for our continuing operations for the
eight quarters ended March 31, 2005. The data have been derived from our unaudited condensed
consolidated financial statements for the periods indicated. Our unaudited consolidated financial
statements have been prepared on substantially the same basis as our audited consolidated financial
statements and include all adjustments, consisting primarily of normal recurring adjustments we
consider to be necessary to present fairly this information when read in conjunction with our
consolidated financial statements. The results of operations for certain quarters may vary from
the amounts previously reported on our Forms 10-Q filed for prior quarters due to timing of our
identification of assets held for sale during the course of the previous eight quarters. The
allocation of results of operations between our continuing operations and discontinued operations,
at the time of the quarterly filings, was based on the assets held for sale, if any, as of the
dates of those filings. This table represents the comparative quarterly operating results for the
75 hotels classified in continuing operations at March 31, 2005: 29




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##### Table of Contents



Three Months Ended3/31/05
    
    
    12/31/04
    
    
    9/30/04
    
    
    6/30/04
    
    
    3/31/04
    
    
    12/31/03
    
    
    9/30/03
    
    
    6/30/03($ in thousands)Revenues:Rooms
    
    $
    54,461
    
    
    $
    50,672
    
    
    $
    62,660
    
    
    $
    62,522
    
    
    $
    56,050
    
    
    $
    50,726
    
    
    $
    60,424
    
    
    $
    59,072Food and beverage
    
    
    14,901
    
    
    
    19,258
    
    
    
    16,656
    
    
    
    19,167
    
    
    
    16,227
    
    
    
    18,513
    
    
    
    16,092
    
    
    
    18,706Other
    
    
    2,492
    
    
    
    2,294
    
    
    
    2,752
    
    
    
    2,760
    
    
    
    2,701
    
    
    
    2,510
    
    
    
    2,771
    
    
    
    2,78371,854
    
    
    
    72,224
    
    
    
    82,068
    
    
    
    84,449
    
    
    
    74,978
    
    
    
    71,749
    
    
    
    79,287
    
    
    
    80,561Operating expenses:Direct:Rooms
    
    
    15,494
    
    
    
    15,648
    
    
    
    17,895
    
    
    
    16,357
    
    
    
    15,457
    
    
    
    15,441
    
    
    
    16,945
    
    
    
    16,058Food and
beverage
    
    
    10,982
    
    
    
    13,936
    
    
    
    12,328
    
    
    
    12,477
    
    
    
    11,289
    
    
    
    12,307
    
    
    
    11,773
    
    
    
    12,125Other
    
    
    1,930
    
    
    
    1,842
    
    
    
    2,052
    
    
    
    2,038
    
    
    
    1,931
    
    
    
    2,132
    
    
    
    1,968
    
    
    
    1,80028,406
    
    
    
    31,426
    
    
    
    32,275
    
    
    
    30,872
    
    
    
    28,677
    
    
    
    29,880
    
    
    
    30,686
    
    
    
    29,98343,448
    
    
    
    40,798
    
    
    
    49,793
    
    
    
    53,577
    
    
    
    46,301
    
    
    
    41,869
    
    
    
    48,601
    
    
    
    50,578Other operating
expenses:Other hotel
operating
costs
    
    
    23,900
    
    
    
    22,763
    
    
    
    24,457
    
    
    
    22,916
    
    
    
    23,194
    
    
    
    21,677
    
    
    
    23,206
    
    
    
    21,962Property and
other taxes,
insurance
and leases
    
    
    5,690
    
    
    
    5,037
    
    
    
    5,416
    
    
    
    5,187
    
    
    
    5,561
    
    
    
    5,118
    
    
    
    5,929
    
    
    
    6,713Corporate
and other
    
    
    4,658
    
    
    
    3,451
    
    
    
    4,412
    
    
    
    4,691
    
    
    
    4,335
    
    
    
    4,537
    
    
    
    4,127
    
    
    
    5,980Casualty
gains and
losses
    
    
    104
    
    
    
    295
    
    
    
    2,019
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation
and
amortization
    
    
    6,658
    
    
    
    6,523
    
    
    
    6,955
    
    
    
    6,797
    
    
    
    6,671
    
    
    
    6,982
    
    
    
    7,308
    
    
    
    7,311Impairment
of
long-lived
assets
    
    
    1,655
    
    
    
    4,878
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,062
    
    
    
    2
    
    
    
    1,377Other
operating
expenses
    
    
    42,665
    
    
    
    42,947
    
    
    
    43,259
    
    
    
    39,591
    
    
    
    39,761
    
    
    
    45,376
    
    
    
    40,572
    
    
    
    43,343783
    
    
    
    (2,149
    )
    
    
    6,534
    
    
    
    13,986
    
    
    
    6,540
    
    
    
    (3,507
    )
    
    
    8,029
    
    
    
    7,235Other income
(expenses):Interest income
and other
    
    
    171
    
    
    
    360
    
    
    
    212
    
    
    
    66
    
    
    
    43
    
    
    
    486
    
    
    
    114
    
    
    
    124Interest expense
and other
financing costs:Preferred
stock
dividend
    
    
    
    
    
    
    
    
    
    
    (866
    )
    
    
    (4,233
    )
    
    
    (4,285
    )
    
    
    (4,065
    )
    
    
    (4,027
    )
    
    
    Other
interest
expense
    
    
    (6,983
    )
    
    
    (7,456
    )
    
    
    (7,264
    )
    
    
    (19,507
    )
    
    
    (8,024
    )
    
    
    (7,583
    )
    
    
    (7,523
    )
    
    
    (6,764
    )Gain on
asset
dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    444
    
    
    
    
    
    
    
    Loss on
preferred
stock
redemption
    
    
    
    
    
    
    
    
    
    
    (4,471
    )
    
    
    (1,592
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Loss) income
before income
taxes,
reorganization
items and
minority
interests
    
    
    (6,029
    )
    
    
    (9,245
    )
    
    
    (5,855
    )
    
    
    (11,280
    )
    
    
    (5,726
    )
    
    
    (14,225
    )
    
    
    (3,407
    )
    
    
    595Reorganization items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    647
    
    
    
    
    
    
    
    (808
    )Loss before income
taxes and minority
interest
    
    
    (6,029
    )
    
    
    (9,245
    )
    
    
    (5,855
    )
    
    
    (11,280
    )
    
    
    (5,726
    )
    
    
    (13,578
    )
    
    
    (3,407
    )
    
    
    (213
    )Minority interests
    
    
    145
    
    
    
    407
    
    
    
    503
    
    
    
    (71
    )
    
    
    (147
    )
    
    
    1,412
    
    
    
    99
    
    
    
    (69
    )Loss before income
taxes  continuing
operations
    
    
    (5,884
    )
    
    
    (8,838
    )
    
    
    (5,352
    )
    
    
    (11,351
    )
    
    
    (5,873
    )
    
    
    (12,166
    )
    
    
    (3,308
    )
    
    
    (282
    )(Provision) benefit
for income taxes -
continuing
operations
    
    
    (67
    )
    
    
    259
    
    
    
    (337
    )
    
    
    (76
    )
    
    
    (76
    )
    
    
    48
    
    
    
    (76
    )
    
    
    (76
    )Loss from
continuing
operations
    
    
    (5,951
    )
    
    
    (8,579
    )
    
    
    (5,689
    )
    
    
    (11,427
    )
    
    
    (5,949
    )
    
    
    (12,118
    )
    
    
    (3,384
    )
    
    
    (358
    )Discontinued
operations:(Loss) income
from
discontinued
operations
before income
taxes
    
    
    (1,134
    )
    
    
    (5,185
    )
    
    
    1,952
    
    
    
    4,180
    
    
    
    (1,136
    )
    
    
    (4,388
    )
    
    
    (262
    )
    
    
    (2,083
    )Income tax
benefit
(provision)(Loss) income
from
discontinued
operations
    
    
    (1,134
    )
    
    
    (5,185
    )
    
    
    1,952
    
    
    
    4,180
    
    
    
    (1,136
    )
    
    
    (4,388
    )
    
    
    (262
    )
    
    
    (2,083
    )Net loss
    
    
    (7,085
    )
    
    
    (13,764
    )
    
    
    (3,737
    )
    
    
    (7,247
    )
    
    
    (7,085
    )
    
    
    (16,506
    )
    
    
    (3,646
    )
    
    
    (2,441
    )Preferred stock
dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,818
    )Net loss
attributable to
common stock
    
    $
    (7,085
    )
    
    $
    (13,764
    )
    
    $
    (3,737
    )
    
    $
    (7,247
    )
    
    $
    (7,085
    )
    
    $
    (16,506
    )
    
    $
    (3,646
    )
    
    $
    (6,259
    )
 EBITDA Reconciliation of Continuing Operations The following table is a reconciliation of the quarterly EBITDA, a non-GAAP measure, for the
past 8 quarters for the hotels classified as continuing operations as of March 31, 2005, reflecting
the reclassification of certain hotels from continuing operations to discontinued operations as
discussed in connection with the preceding table: Three Months Ended3/31/05
    
    
    12/31/04
    
    
    9/30/04
    
    
    6/30/04
    
    
    3/31/04
    
    
    12/31/03
    
    
    9/30/03
    
    
    6/30/03($ in thousands)Continuing operations:Loss from continuing operations
    
    $
    (5,951
    )
    
    $
    (8,579
    )
    
    $
    (5,689
    )
    
    $
    (11,427
    )
    
    $
    (5,949
    )
    
    $
    (12,118
    )
    
    $
    (3,384
    )
    
    $
    (358
    )Depreciation and amortization
    
    
    6,658
    
    
    
    6,523
    
    
    
    6,955
    
    
    
    6,797
    
    
    
    6,671
    
    
    
    6,982
    
    
    
    7,308
    
    
    
    7,311Fresh start adjustmentsInterest income
    
    
    (220
    )
    
    
    (346
    )
    
    
    (176
    )
    
    
    (80
    )
    
    
    (48
    )
    
    
    (196
    )
    
    
    (72
    )
    
    
    (104
    )Interest expense
    
    
    6,983
    
    
    
    7,456
    
    
    
    7,264
    
    
    
    19,507
    
    
    
    8,024
    
    
    
    7,583
    
    
    
    7,523
    
    
    
    6,764Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    866
    
    
    
    4,233
    
    
    
    4,285
    
    
    
    4,065
    
    
    
    4,027
    
    
    
    Loss on preferred stock
redemption
    
    
    
    
    
    
    
    
    
    
    4,471
    
    
    
    1,592
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Provision (benefit) for income
taxes  continuing operations
    
    
    67
    
    
    
    (259
    )
    
    
    337
    
    
    
    76
    
    
    
    76
    
    
    
    (48
    )
    
    
    76
    
    
    
    76EBITDA from continuing
operations
    
    $
    7,537
    
    
    $
    4,795
    
    
    $
    14,028
    
    
    $
    20,698
    
    
    $
    13,059
    
    
    $
    6,268
    
    
    $
    15,478
    
    
    $
    13,689
 30




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##### Table of Contents



Loss from continuing operations, and accordingly, EBITDA from continuing operations, is after
deducting the following items: Three Months Ended3/31/05
    
    
    12/31/04
    
    
    9/30/04
    
    
    6/30/04
    
    
    3/31/04
    
    
    12/31/03
    
    
    9/30/03
    
    
    6/30/03($ in thousands)Adjustments to EBITDA:Post-emergence Chapter 11
expenses, included in
corporate
and other on consolidated
statement of operations
    
    $
    110
    
    
    $
    61
    
    
    $
    67
    
    
    $
    135
    
    
    $
    195
    
    
    $
    1,289
    
    
    $
    320
    
    
    $
    1,000Reorganization expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (647
    )
    
    
    
    
    
    
    808Impairment loss
    
    
    1,655
    
    
    
    4,878
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,062
    
    
    
    2
    
    
    
    1,377Gain on asset dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (444
    )
    
    
    
    
    
    
    Casualty losses - 2004
hurricane damage
    
    
    104
    
    
    
    294
    
    
    
    2,019
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjustments to bankruptcy
claims reserves
    
    
    
    
    
    
    (38
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (302
    )
    
    
    
    
    
    
    90
 Hotel data by market segment and region Hotel data by market segment
 The following two tables present data on occupancy, ADR and RevPAR for hotels in our portfolio
(including one hotel that we do not consolidate) for the quarters ended March 31, 2005 and March
31, 2004 , by market segment and the capital expenditures for the three months ended March 31,
2005. The following tables exclude three of our hotels because of year over year comparative
issues as noted below:  
    The Springhill Suites by Marriott hotel in Pinehurst, North Carolina (acquired in
December 2004) is excluded since we do not have comparative figures for the first quarter
2004;
    The Holiday Inn Melbourne, Florida hotel since it is currently closed for hurricane renovations; and
    The Crowne Plaza West Palm Beach, Florida hotel since it is currently closed for hurricane renovations. 31




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##### Table of Contents



Combined Continuing and Discontinued Operations  80 hotels Capital expendituresThree Months EndedMarch 31, 2005
    
    Three Months Ended($ in thousands)
    
    March 31, 2005
    
    
    March 31, 2004Upper UpscaleNumber of properties
    
    $
    83
    
    
    
    4
    
    
    
    4Number of rooms
    
    
    
    
    
    
    825
    
    
    
    825Occupancy
    
    
    
    
    
    
    67.0
    %
    
    
    64.0
    %Average daily rate
    
    
    
    
    
    $
    100.25
    
    
    $
    94.24RevPAR
    
    
    
    
    
    $
    67.17
    
    
    $
    60.31UpscaleNumber of properties
    
    
    1,648
    
    
    
    16
    
    
    
    16Number of rooms
    
    
    
    
    
    
    2,783
    
    
    
    2,783Occupancy
    
    
    
    
    
    
    65.2
    %
    
    
    66.6
    %Average daily rate
    
    
    
    
    
    $
    92.50
    
    
    $
    86.03RevPAR
    
    
    
    
    
    $
    60.29
    
    
    $
    57.26Midscale with Food & BeverageNumber of properties
    
    
    8,140
    
    
    
    48
    
    
    
    47Number of rooms
    
    
    
    
    
    
    9,853
    
    
    
    9,460Occupancy
    
    
    
    
    
    
    53.2
    %
    
    
    55.2
    %Average daily rate
    
    
    
    
    
    $
    72.78
    
    
    $
    70.02RevPAR
    
    
    
    
    
    $
    38.69
    
    
    $
    38.64Midscale without Food & BeverageNumber of properties
    
    
    1,115
    
    
    
    9
    
    
    
    7Number of rooms
    
    
    
    
    
    
    1,067
    
    
    
    833Occupancy
    
    
    
    
    
    
    60.2
    %
    
    
    53.9
    %Average daily rate
    
    
    
    
    
    $
    64.43
    
    
    $
    62.78RevPAR
    
    
    
    
    
    $
    38.82
    
    
    $
    33.84Independent HotelsNumber of properties
    
    
    2,225
    
    
    
    3
    
    
    
    6Number of rooms
    
    
    
    
    
    
    535
    
    
    
    1,162Occupancy
    
    
    
    
    
    
    29.8
    %
    
    
    41.2
    %Average daily rate
    
    
    
    
    
    $
    59.09
    
    
    $
    58.75RevPAR
    
    
    
    
    
    $
    17.62
    
    
    $
    24.22All HotelsNumber of properties
    
    
    13,211
    
    
    
    80
    
    
    
    80Number of rooms
    
    
    
    
    
    
    15,063
    
    
    
    15,063Occupancy
    
    
    
    
    
    
    55.8
    %
    
    
    56.6
    %Average daily rate
    
    
    
    
    
    $
    77.94
    
    
    $
    73.98RevPAR
    
    
    
    
    
    $
    43.50
    
    
    $
    41.89
 Continuing Operations  73 hotels 32




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##### Table of Contents



Capital expenditures
    
    
    Three Months EndedThree Months Ended
    
    
    March 31, 2005
    
    
    March 31, 2004March 31, 2005($ in thousands)Upper UpscaleNumber of properties
    
    $
    83
    
    
    
    4
    
    
    
    4Number of rooms
    
    
    
    
    
    
    825
    
    
    
    825Occupancy
    
    
    
    
    
    
    67.0
    %
    
    
    64.0
    %Average daily rate
    
    
    
    
    
    $
    100.25
    
    
    $
    94.24RevPAR
    
    
    
    
    
    $
    67.17
    
    
    $
    60.31UpscaleNumber of properties
    
    
    1,648
    
    
    
    16
    
    
    
    16Number of rooms
    
    
    
    
    
    
    2,783
    
    
    
    2,783Occupancy
    
    
    
    
    
    
    65.2
    %
    
    
    66.6
    %Average daily rate
    
    
    
    
    
    $
    92.50
    
    
    $
    86.03RevPAR
    
    
    
    
    
    $
    60.29
    
    
    $
    57.26Midscale with Food & BeverageNumber of properties
    
    
    8,069
    
    
    
    42
    
    
    
    41Number of rooms
    
    
    
    
    
    
    8,031
    
    
    
    7,638Occupancy
    
    
    
    
    
    
    56.0
    %
    
    
    58.8
    %Average daily rate
    
    
    
    
    
    $
    74.81
    
    
    $
    71.29RevPAR
    
    
    
    
    
    $
    41.93
    
    
    $
    41.90Midscale without Food & BeverageNumber of properties
    
    
    836
    
    
    
    8
    
    
    
    6Number of rooms
    
    
    
    
    
    
    926
    
    
    
    692Occupancy
    
    
    
    
    
    
    65.2
    %
    
    
    58.2
    %Average daily rate
    
    
    
    
    
    $
    65.34
    
    
    $
    64.33RevPAR
    
    
    
    
    
    $
    42.63
    
    
    $
    37.44Independent HotelsNumber of properties
    
    
    2,225
    
    
    
    3
    
    
    
    6Number of rooms
    
    
    
    
    
    
    535
    
    
    
    1,162Occupancy
    
    
    
    
    
    
    29.8
    %
    
    
    41.2
    %Average daily rate
    
    
    
    
    
    $
    59.09
    
    
    $
    58.75RevPAR
    
    
    
    
    
    $
    17.62
    
    
    $
    24.22All HotelsNumber of properties
    
    
    12,861
    
    
    
    73
    
    
    
    73Number of rooms
    
    
    
    
    
    
    13,100
    
    
    
    13,100Occupancy
    
    
    
    
    
    
    58.3
    %
    
    
    59.2
    %Average daily rate
    
    
    
    
    
    $
    79.77
    
    
    $
    75.24RevPAR
    
    
    
    
    
    $
    46.47
    
    
    $
    44.52
 The categories in the tables above are based on the Smith Travel Research Chain Scales and are
defined as:  
    Upper Upscale: Hilton and Marriott;  
    Upscale: Courtyard by Marriott, Crowne Plaza, Radisson and Residence Inn by Marriott;  
    Midscale with Food & Beverage: Clarion, DoubleTree, Four Points, Holiday Inn, Holiday
Inn Select, Holiday Inn SunSpree Resort and Quality Inn  
    Midscale without Food & Beverage Fairfield Inn by Marriott and Holiday Inn Express 33




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##### Table of Contents



Hotel data by region The following two tables present data on occupancy, ADR and RevPAR for hotels in our portfolio
(including one hotel that we do not consolidate) for the quarters ended March 31, 2005 and March
31, 2004, by region and the capital expenditures for the three months ended March 31, 2005. The
following tables exclude three of our hotels because of year over year comparative issues as noted
below:  
    The Springhill Suites by Marriott hotel in Pinehurst, North Carolina (acquired in
December 2004) is excluded since we do not have comparative figures for the first quarter
2004;
    The Holiday Inn Melbourne, Florida hotel since it is currently closed for hurricane renovations; and
    The Crowne Plaza West Palm Beach, Florida hotel since it is currently closed for hurricane renovations. Combined Continuing and Discontinued Operations  80 hotels Capital expenditures
    
    Three Months EndedThree Months Ended
    
    March 31, 2005
    
    
    March 31, 2004March 31, 2005($ in thousands)Northeast RegionNumber of properties
    
    $
    4,745
    
    
    
    29
    
    
    
    29Number of rooms
    
    
    
    
    
    
    5,552
    
    
    
    5,552Occupancy
    
    
    
    
    
    
    54.4
    %
    
    
    57.3
    %Average daily rate
    
    
    
    
    
    $
    84.45
    
    
    $
    80.10RevPAR
    
    
    
    
    
    $
    45.97
    
    
    $
    45.86Southeast RegionNumber of properties
    
    
    6,379
    
    
    
    26
    
    
    
    26Number of rooms
    
    
    
    
    
    
    4,297
    
    
    
    4,297Occupancy
    
    
    
    
    
    
    55.1
    %
    
    
    55.1
    %Average daily rate
    
    
    
    
    
    $
    67.32
    
    
    $
    63.00RevPAR
    
    
    
    
    
    $
    37.08
    
    
    $
    34.70Midwest RegionNumber of properties
    
    
    530
    
    
    
    18
    
    
    
    18Number of rooms
    
    
    
    
    
    
    3,895
    
    
    
    3,895Occupancy
    
    
    
    
    
    
    51.4
    %
    
    
    51.5
    %Average daily rate
    
    
    
    
    
    $
    72.45
    
    
    $
    70.57RevPAR
    
    
    
    
    
    $
    37.22
    
    
    $
    36.32West RegionNumber of properties
    
    
    1,557
    
    
    
    7
    
    
    
    7Number of rooms
    
    
    
    
    
    
    1,319
    
    
    
    1,319Occupancy
    
    
    
    
    
    
    77.1
    %
    
    
    74.2
    %Average daily rate
    
    
    
    
    
    $
    94.15
    
    
    $
    87.64RevPAR
    
    
    
    
    
    $
    72.57
    
    
    $
    65.03All HotelsNumber of properties
    
    
    13,211
    
    
    
    80
    
    
    
    80Number of rooms
    
    
    
    
    
    
    15,063
    
    
    
    15,063Occupancy
    
    
    
    
    
    
    55.8
    %
    
    
    56.6
    %Average daily rate
    
    
    
    
    
    $
    77.94
    
    
    $
    73.98RevPAR
    
    
    
    
    
    $
    43.50
    
    
    $
    41.89
 Continuing Operations  73 hotels 34




---



##### Table of Contents



Capital expenditures
    
    
    Three Months EndedThree Months Ended
    
    
    March 31, 2005
    
    
    March 31, 2004March 31, 2005($ in thousands)Northeast RegionNumber of properties
    
    $

4,738
    
    
    
    28
    
    
    
    28Number of rooms
    
    
    
    
    
    
    5,155
    
    
    
    5,155Occupancy
    
    
    
    
    
    
    56.3
    %
    
    
    58.9
    %Average daily rate
    
    
    
    
    
    $
    84.98
    
    
    $
    80.60RevPAR
    
    
    
    
    
    $
    47.88
    
    
    $
    47.45Southeast RegionNumber of properties
    
    

6,061
    
    
    
    23
    
    
    
    23Number of rooms
    
    
    
    
    
    
    3,753
    
    
    
    3,753Occupancy
    
    
    
    
    
    
    56.8
    %
    
    
    57.1
    %Average daily rate
    
    
    
    
    
    $
    68.54
    
    
    $
    63.64RevPAR
    
    
    
    
    
    $
    38.94
    
    
    $
    36.31Midwest RegionNumber of properties
    
    
    505
    
    
    
    15
    
    
    
    15Number of rooms
    
    
    
    
    
    
    2,873
    
    
    
    2,873Occupancy
    
    
    
    
    
    
    54.9
    %
    
    
    55.6
    %Average daily rate
    
    
    
    
    
    $
    76.13
    
    
    $
    72.98RevPAR
    
    
    
    
    
    $
    41.82
    
    
    $
    40.56West RegionNumber of properties
    
    
    1,557
    
    
    
    7
    
    
    
    7Number of rooms
    
    
    
    
    
    
    1,319
    
    
    
    1,319Occupancy
    
    
    
    
    
    
    77.1
    %
    
    
    74.2
    %Average daily rate
    
    
    
    
    
    $
    94.15
    
    
    $
    87.64RevPAR
    
    
    
    
    
    $
    72.57
    
    
    $
    65.03All HotelsNumber of properties
    
    
    12,861
    
    
    
    73
    
    
    
    73Number of rooms
    
    
    
    
    
    
    13,100
    
    
    
    13,100Occupancy
    
    
    
    
    
    
    58.3
    %
    
    
    59.2
    %Average daily rate
    
    
    
    
    
    $
    79.77
    
    
    $
    75.24RevPAR
    
    
    
    
    
    $
    46.47
    
    
    $
    44.52
 The regions in the tables above are defined as:  
    Northeast: Canada, Connecticut, Massachusetts, Maryland, New Hampshire, New York, Ohio,
Pennsylvania, Vermont, West Virginia;
    Southeast: Alabama, Florida, Georgia, Kentucky, Louisiana, South Carolina, Tennessee;
    Midwest: Arkansas, Iowa, Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri,
Oklahoma, Texas; and
    West: Arizona, California, Colorado, New Mexico. Liquidity and Capital Resources Working Capital We use our cash flows primarily for operating expenses, debt service, and capital
expenditures. Currently, our principal sources of liquidity consist of cash flows from operations
and existing cash balances. Cash flows from operations may be adversely affected by factors such as
a reduction in demand for lodging or certain large scale renovations being performed at our hotels.
To the extent that significant amounts of our accounts receivable are due 35




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##### Table of Contents



from airline companies, a further downturn in the airline industry also could materially and adversely affect the
collectibility of our accounts receivable, and hence our liquidity. A further downturn in the
airline industry could also affect revenues by decreasing the aggregate levels of demand for our
hotels by airline industry employees. At March 31, 2005, airline receivables represented
approximately 14.0% of our accounts receivable net of allowances. Between November 1, 2003 and May 1, 2005, we sold fifteen hotels, one office building, and two
land parcels and have another seven hotels and one land parcel classified as assets held for sale.
The aggregate sales price from the sale of the fifteen hotels, the office building and two land
parcels sold between November 1, 2003 and May 1, 2005, was $66.8 million, $51.5 million of which
was used to pay down debt and $11.0 million of which was used for general corporate purposes,
including capital expenditures. Our ability to make scheduled debt service payments and fund operations and capital
expenditures depends on our future performance and financial results, including the successful
implementation of our business strategy and, to a certain extent, the general condition of the
lodging industry and the general economic, political, financial, competitive, legislative and
regulatory environment. In addition, our ability to refinance our indebtedness depends to a certain
extent on these factors as well. Many factors affecting our future performance and financial
results, including the severity and duration of macro-economic downturns, are beyond our control.
See Matters Which May Affect Future Results  Risks Related to Our Business in our Annual Report
on Form 10-K for the year ended December 31, 2004. In June 2004, we completed an offering to the public of our common stock, the purpose of which
was to redeem our outstanding Preferred Stock, to fund capital expenditures related to renovations
and repositionings of selected hotels, and for general corporate purposes including funding our
growth strategy. In connection with this offering, we closed on the $370 million Merrill Lynch
Mortgage Lending, Inc. refinance in order to extend maturities and to convert a substantial portion
of floating rate debt to fixed rate debt. We intend to continue to use our cash flow to make scheduled debt service payments and fund
operations and capital expenditures and, therefore, do not anticipate paying dividends on our
common stock in the foreseeable future. Although we have emerged from Chapter 11, the distribution of shares to general unsecured
creditors is not complete as we continue to reconcile the claims made by these creditors. We have
established an accrual for allowed claims from which these claims will be paid. Until this process
is complete, we will continue to incur expenses in respect of these claims as well as Bankruptcy
Court fees and professional fees. In accordance with GAAP, all assets held for sale, including assets that would normally be
classified as long-term assets in the normal course of business, were reported as assets held for
sale in current assets. Similarly, all liabilities related to assets held for sale were reported
as liabilities related to assets held for sale in current liabilities, including debt that would
otherwise be classified as long-term liabilities in the ordinary course of business. At March 31, 2005, we had a working capital deficit (current assets less current liabilities)
of $13.2 million compared to a working capital surplus of $9.5 million at December 31, 2004. The
decrease in working capital was primarily due to a decrease in current assets as we used cash for
our renovation program and an increase in current liabilities related to insurance advances
received from our insurance carrier for property damage claims. In 2004 with the completion of our
common stock offering, we received net proceeds that approximated $175.9 million, of which
approximately $25.7 million was used to fund reserve accounts with Merrill Lynch Mortgage pursuant
to requirements in our June 2004 Refinancing Debt agreements. A reserve of $22.7 million was
funded for capital expenditures and a reserve of $3.0 million was funded for requirements related
to a hotel ground lease that was ultimately resolved at approximately $1.8 million. On July 26,
2004, we used approximately $114.0 million of the proceeds from our equity offering to redeem all
of our outstanding shares of Series A Preferred Stock, including accrued dividends and a 4%
prepayment premium. Approximately $2.2 million in cash replaced the 79,278 shares of Preferred
Stock held in the disputed claims reserve. During the first quarter 2005 we spent approximately $19.6 million on capital expenditures.
We expect to spend an additional $69.3 million during the remainder of 2005, which includes
committed hurricane repair capital 36




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expenditures of $43.7 million, much of which we anticipate will
be covered by insurance proceeds, thereby completing substantially all of our deferred renovations. We believe that the combination of our current cash, cash flows from operations, capital
expenditure escrows and the proceeds of asset sales will be sufficient to meet our liquidity needs
for the next 24 months. Our ability to meet our long-term cash needs is dependent on the continuation and extent of
the recovery of the economy and the lodging industry, improvement in our operating results, the
successful implementation of our portfolio improvement strategy and our ability to obtain third
party sources of capital on favorable terms as and when needed. In the short term, we continue to
diligently monitor our costs. Our future liquidity needs and sources of working capital are subject
to uncertainty and we can provide no assurance that we will have sufficient liquidity to be able to
meet our operating expenses, debt service requirements, including scheduled maturities, and planned
capital expenditures. We could lose the right to operate certain hotels under nationally recognized
brand names, and furthermore, the termination of one or more franchise agreements could lead to
defaults and acceleration under one or more loan agreements as well as obligations to pay
liquidated damages under the franchise agreements. See Matters Which May Affect Future Results 
Risks Related to Our Business in our Annual Report on Form 10-K for the year ended December 31,
2004, for further discussion of conditions that could adversely affect our estimates of future
liquidity needs and sources of working capital. Cash Flow Operating Activities Net cash used by operating activities was $0.3 million in the first quarter 2005 as compared
to net cash provided by operating activities of $6.1 million in the first quarter of 2004. The
decrease in cash generated by operations is attributable to the continued closure of two hotels due
to hurricane damage and to fewer hotels in our portfolio due to the sale of hotels. Investing Activities Investing activities provided a net cash inflow of $0.5 million for the three months ended
March 31, 2005 and a net cash inflow of $11.1 million for the first three months of 2004. The $10.7
million decrease in the net cash used in investing activities in the three months ended March 31,
2005 as compared to the first three months of 2004 is a result of a $14.6 million increase in
capital improvements related to our hurricane damaged hotels and hotel renovation program, a $5.0
million decrease in net proceeds from asset sales, $4.7 million of deposits into capital
expenditure reserves in the first three months of 2005 as compared to $2.2 million in withdrawals
in 2004, and the receipt of $15.8 million in insurance advance proceeds for the hurricane damaged
hotels in the first quarter 2005. Financing activities We used $14.8 million of net cash in financing activities in the three months ended March 31,
2005 for principal payments on our indebtedness and payments of deferred financing costs as
compared to $15.5 million used for these purposes in the first three months of 2004. Debt and Contractual Obligations See discussion of our Debt and Contractual Obligations in our Form 10-K for the year ended
December 31, 2004 and Note 10 in this 10-Q filing. Off Balance Sheet Arrangements We have no off balance sheet arrangements. 37




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Market Risk We are exposed to interest rate risks on our variable rate debt. At March 31, 2005 and
December 31, 2004, we had outstanding variable rate debt of approximately $93.2 million and $102.7
million, respectively. On May 22, 2003, we finalized the $80 million Lehman Financing which was repaid on June 25,
2004. The Lehman Financing was a two-year term loan with an optional one-year extension and bore
interest at the higher of 7.25% or LIBOR plus 5.25%. In order to manage our exposure to
fluctuations in interest rates with the Lehman Financing, we entered into an interest rate cap
agreement, which allowed us to obtain this financing at a partial floating rate and effectively
capped the interest rate at LIBOR of 5.00% plus 5.25%. When LIBOR exceeded 5.00%, the contracts
would have required settlement of net interest receivable at specified intervals, which generally
coincided with the dates on which interest was payable on the underlying debt. If LIBOR would have
fallen below 5.00%, there would have been no settlement from the interest rate cap. We were exposed
to interest rate risks on the Lehman Financing for LIBOR of between 2.00% and 5.00%. The notional
principal amount of the interest rate cap outstanding was $80.0 million at March 31, 2005. On June 25, 2004, we refinanced both the Merrill Lynch Exit Financing and Lehman Financing.
The new refinancing is organized in four fixed rate pools and one floating rate pool. In order to
manage our exposure to fluctuations in interest rates with the floating pool, we entered into an
interest rate cap agreement, which allowed us to obtain this financing at a floating rate and
effectively cap the interest rate at LIBOR of 5.00% plus 3.40%. When LIBOR exceeds 5.00%, the
contract requires 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. We are exposed to interest rate risks on
the floating pool for increases in LIBOR up to 5.00%, but we are not exposed to increases in LIBOR
above 5.00% because settlements from the interest rate caps would offset the incremental interest
expense. The notional principal amount of the interest rate cap outstanding was $110.0 million at
March 31, 2005. The fair value of the interest rate cap related to Refinanced Debt as of March 31, 2005 was
approximately $42,000. The fair value of the one cap related to the Lehman Financing as of March
31, 2005 and December 31, 2004 were nil. 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. As a result of having two interest rate caps, we believe that our interest rate risk at March
31, 2005 and December 31, 2004 is minimal. The impact on annual results of operations of a
hypothetical one-point interest rate reduction on the interest rate caps as of March 31, 2005 would
be a reduction in net income of approximately $40,000. These derivative financial instruments are
viewed as risk management tools. We do not use derivative financial instruments for trading or
speculative purposes. However, we have not elected the hedging requirements of SFAS No. 133. At March 31, 2005, approximately $93.2 million of debt instruments outstanding were subject to
changes in the LIBOR. Without regard to additional borrowings under those instruments or scheduled
amortization, the annualized effect of each twenty-five basis point increase in LIBOR would be a
reduction in income before income taxes of approximately $0.2 million. The fair value of the fixed
rate mortgage debt (book value $333.1 million) at March 31, 2005 is estimated at $342.5 million. The nature of our fixed rate obligations does not expose us to fluctuations in interest
payments. The impact on the fair value of our fixed rate obligations of a hypothetical one-point
interest rate increase on the outstanding fixed-rate debt as of March 31, 2005 and December 31,
2004 would be approximately $8.1 million and $12.1 million, respectively. Forward-looking Statements We make forward looking statements in this report and other reports we file with the SEC. In
addition, management may make oral forward-looking statements in discussions with analysts, the
media, investors and others. These statements include statements relating to our plans, strategies,
objectives, expectations, intentions and 38




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adequacy of resources, and are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. The words believes,
anticipates, expects, intends, plans, estimates, and projects and similar expressions
are intended to identify forward-looking statements. These forward-looking statements reflect our
current views with respect to future events and the impact of these events on our business,
financial condition, results of operations and prospects are subject to many risks and
uncertainties including the following:  
    The effects of regional, national and international economic conditions, including the
magnitude and duration of the economic recovery in the United States;
    Competitive conditions in the lodging industry and increases in room capacity;
    The effects of actual and threatened terrorist attacks and international conflicts and
their impact on domestic and international travel, including the potentially marked
decrease in travel in connection with military action in Iraq or elsewhere;
    The effectiveness of changes in management and our ability to retain qualified
individuals to serve in senior management positions;
    Requirements of franchise agreements, including the right of some franchisors to
immediately terminate their respective agreements if we breach certain provisions;
    Our ability to complete planned hotel and land parcel dispositions;
    Seasonality of the hotel business;
    The financial condition of the airline industry and its impact on air travel;
    The effects of unpredictable weather such as hurricanes;
    The effect that Internet reservation channels may have on the rates that we are able to
charge for hotel rooms;
    Increases in the cost of debt and our continued compliance with the terms of our loan agreements;
    The effect of the majority of our assets being encumbered on our borrowings and future growth;
    Our ability to meet the continuing listing requirements of the Securities and Exchange
Commission and the American Stock Exchange;
    The effect of self-insured claims in excess of our reserves, or our ability to obtain
adequate property and liability insurance to protect against losses, or to obtain insurance
at reasonable rates;
    Potential litigation and/or governmental inquiries and investigations;
    Laws and regulations applicable to our business, including federal, state or local
hotel, resort, restaurant or land use regulations, employment, labor or disability laws and
regulations;
    The short time that the public market for our new securities has existed;
    The risks identified under Risks Related to Our Business and Risks Relating to Our
Common Stock in our Annual Report on Form 10-K for the year ended December 31, 2003; and
    Our ability to collect insurance proceeds for both property damage and business
interruption claims related to damage caused by hurricanes to certain hotels. Any of these risks and uncertainties could cause actual results to differ materially from
historical results or those anticipated. Although we believe the expectations reflected in our
forward-looking statements are based upon 39




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reasonable assumptions, we can give no assurance that our
expectations will be attained and caution you not to place undue reliance on such statements. We
undertake no obligation to publicly update or revise any forward-looking statements to reflect
current or future events or circumstances or their impact on our business, financial condition,
results of operations and prospects. Many of these factors are not within our control and we
caution you not to put undue reliance on forward looking statements. Inflation We have not determined the precise impact of inflation. However, we believe that the rate of
inflation has not had a material effect on our revenues or expenses in recent years. It is
difficult to predict whether inflation will have a material effect on our results in the long-term. 
 Item 3.Quantitative and Qualitative Disclosures About Market Risk See Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations  Market Risk. 
 Item 4.Controls and Procedures a) Based on an evaluation of our disclosure controls and procedures carried out as of March
31, 2005, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective since they would cause material information required to be disclosed by us in the reports we
file or submit 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 March 31, 2005, there were no changes in our internal control over
financial reporting which materially affected, or are likely to materially affect, our internal
control over financial reporting. 
 PART II  OTHER INFORMATION 
 Item 1.Legal Proceedings From time to time, as we conduct our business, legal actions and claims are brought against
us. The outcome of these matters is uncertain. However, we believe that all currently pending
matters will be resolved without a material adverse effect on our results of operations or
financial condition. Claims relating to the period before we filed for Chapter 11 protection are
limited to the amounts approved by the Bankruptcy Court for settlement of such claims and are
payable out of the reserve for allowed claims established on our balance sheet, which as of March
31, 2005 has a balance of $2.2 million. We have reserved for all claims approved by the Bankruptcy
Court which have not yet been paid. 
 Item 6.Exhibits (a) A 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. 40




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SIGNATURES Pursuant 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.By:      /s/ W. THOMAS PARRINGTONDate: May 10, 2005
    
    W. Thomas ParringtonPresident and Chief Executive OfficerBy:      /s/ LINDA BORCHERT PHILPDate: May 10, 2005
    
    Linda Borchert PhilpExecutive Vice President andChief Financial Officer
 41




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EXHIBIT INDEX ExhibitNumber
    
    Description1.1
    
    Disclosure Statement for Joint Plan of Reorganization of Lodgian, Inc., et al(other than the
CCA Debtors), Together with the Official Committee of Unsecured Creditors under Chapter 11 of
the Bankruptcy Code, dated September 26, 2002) (Incorporated by reference to Exhibit 10.6 to
the Companys Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed
on March 9, 2004).1.2
    
    First Amended Joint Plan of Reorganization of Lodgian, Inc., et al(Other than CCA Debtors),
Together with the Official Committee of Unsecured Creditors under Chapter 11 of the Bankruptcy
Code, dated September 26, 2002) (Incorporated by reference to Exhibit 10.7 to the Companys
Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed on March 9,
2004).1.3
    
    Order Confirming First Amended Joint Plan of Reorganization of Lodgian, Inc., et alissued on
November 5, 2002 by the United States Bankruptcy Curt for the Southern District of New York
(Incorporated by reference to Exhibit 10.8 to the Companys Annual Report for the period ended
December 31, 2003 (File No. 1-14537), filed on March 9, 2004).1.4
    
    Disclosure Statement for Joint Plan of Reorganization of Impac Hotels II, L.L.C. and Impac
Hotels III, L.L.C. Together with the Official Committee of Unsecured Creditors Under Chapter
11 of the Bankruptcy Code (Incorporated by reference to Exhibit 10.13.1 to the Companys
Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed on March 9,
2004).1.5
    
    Joint Plan of Reorganization of Impac Hotels II, L.L.C. and Impac Hotels III, L.L.C. Together
with the Official Committee of Unsecured Creditors under Chapter 11 of the Bankruptcy Code
(Incorporated by reference to Exhibit 10.13.2 to the Companys Annual Report for the period
ended December 31, 2003 (File No. 1-14537), filed on March 9, 2004).1.6
    
    Order Confirming Joint Plan of Reorganization of Impac Hotels II, L.L.C. and Impac Hotels
III, L.L.C. Together with the Official Committee of Unsecured Creditors under Chapter 11 of
the Bankruptcy Code (Incorporated by reference to Exhibit 10.13.3 to the Companys Annual
Report for the period ended December 31, 2003 (File No. 1-14537), filed on March 9, 2004).1.7
    
    Post Confirmation Order and Notice for Joint Plan of Reorganization of Impac Hotels III,
L.L.C. Together with the Official Committee of Unsecured Creditors under Chapter 11 of the
Bankruptcy Code (Incorporated by reference to Exhibit 10.13.4 to the Companys Annual Report
for the period ended December 31, 2003 (File No. 1-14537), filed on March 9, 2004).3.1
    
    Amended and Restated Certificate of Incorporation of Lodgian, Inc. (Incorporated by reference
to Exhibit 3.1 to Amendment No. 2 to the Companys Registration Statement on Form S-1 (File
No. 333-113410), filed on June 6, 2004).3.2
    
    Amended and Restated Bylaws of Lodgian, Inc. (Incorporated by reference to Exhibit 3.4 to the
Companys Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed on
March 9, 2004).4.1
    
    Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to Amendment No.
2 to the Companys Registration Statement on Form S-1 (File No. 333-113410), filed on June 6,
2004).4.2
    
    Class A Warrant Agreement, dated as of November 25, 2002, between Lodgian, Inc. and Wachovia
Bank, N.A. (Incorporated by reference to Exhibit 10.9 to the Companys Annual Report for the
period ended December 31, 2003 (File No. 1-14537), filed on March 9, 2004).4.3
    
    Class B Warrant Agreement, dated as of November 25, 2002, between Lodgian, Inc. and Wachovia
Bank, N.A. (Incorporated by reference to Exhibit 10.10 to the Companys Annual Report for the
period ended December 31, 2003 (File No. 1-14537), filed on March 9, 2004).




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ExhibitNumber
    
    Description4.4
    
    Registration Rights Agreement, dated as of November 25, 2002, between Lodgian, Inc. and the
other signatories thereto (Incorporated by reference to Exhibit 10.11 to the Companys Annual
Report for the period ended December 31, 2003 (File No. 1-14537), filed on March 9, 2004).4.5
    
    Preferred Share Exchange Agreement, dated June 22, 2004, by and among Lodgian, Inc. and the
record and/or beneficial stockholders as signatories thereto. (Incorporated by reference to
Exhibit 10.9 to the Companys Quarterly Report for the period ended June 30, 2004 (File No.
1-14537), filed on August 16, 2004).4.6
    
    Registration Rights Agreement, dated June, dated June 22, 2004, by and among Lodgian, Inc.
and the signatories thereto. (Incorporated by reference to Exhibit 10.10 to the Companys
Quarterly Report for the period ended June 30, 2004 (File No. 1-14537), filed on August 16,
2004).10.1
    
    Loan Agreement, dated as of January 31, 1995, by and among Column Financial, Inc., Servico
Fort Wayne, Inc., Washington Motel Enterprises, Inc., Servico Hotels I, Inc., Servico Hotels
II, Inc., Servico Hotels III, Inc., Servico Hotels IV, Inc., New Orleans Airport Motels
Associates, Ltd., Wilpen, Inc., Hilton Head Motels Enterprises, Inc., and Moon Airport Hotel,
Inc. (Incorporated by reference to Exhibit 10.1.1 to the Companys Annual Report for the
period ended December 31, 2003 (File No. 1-14537), filed on March 9, 2004).10.2
    
    Promissory Note, in original amount of $60.5 million, dated as of January 31, 1995, by
Servico Fort Wayne, Inc., Washington Motel Enterprises, Inc., Servico Hotels I, Inc., Servico
Hotels II, Inc., Servico Hotels III, Inc., Servico Hotels IV, Inc., New Orleans Airport Motels
Associates, Ltd., Wilpen, Inc., Hilton Head Motels Enterprises, Inc., and Moon Airport Hotel,
Inc., in favor of Column Financial, Inc. (Incorporated by reference to Exhibit 10.1.2 to the
Companys Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed on
March 9, 2004).10.3
    
    Lease Agreement, dated April 7, 1997, by and between CSB-Georgia Limited Partnership and
Impac Hotel Group, L.L.C. (Incorporated by reference to Exhibit 10.14.1 to the Companys
Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed on March 9,
2004).10.4
    
    First Amendment to Lease Agreement, dated as of May 8, 1998, by and between Cousins LORET
Venture, L.L.C. and Impac Hotel Group, L.L.C. (Incorporated by reference to Exhibit 10.14.2 to
the Companys Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed
on March 9, 2004).10.5
    
    Second Amendment to Lease Agreement, dated as of June 7, 2000, by and between Cousins LORET
Venture, L.L.C. and Lodgian, Inc. (Incorporated by reference to Exhibit 10.14.3 to the
Companys Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed on
March 9, 2004).10.6
    
    Third Amendment to Lease Agreement, dated as of April 1, 2002, by and between Cousins LORET
Venture, L.L.C. and Lodgian, Inc. (Incorporated by reference to Exhibit 10.14.4 to the
Companys Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed on
March 9, 2004).10.7
    
    Fourth Amendment to Lease Agreement, dated as of April 28, 2003, by and between Cousins LORET
Venture, L.L.C. and Lodgian, Inc. (Incorporated by reference to Exhibit 10.14.5 to the
Companys Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed on
March 9, 2004).10.8
    
    Fifth Amendment to Lease Agreement, dated as of December 23, 2003, by and between Cousins
LORET Venture, L.L.C. and Lodgian, Inc. (Incorporated by reference to Exhibit 10.14.6 to the
Companys Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed on
March 9, 2004).10.9
    
    Loan and Security Agreement (Floating Rate), dated as of June 25, 2004, by and between the
Borrowers listed on Schedule 1 thereto and Merrill Lynch Mortgage Lending, Inc. (Incorporated
by reference to Exhibit 10.1.1 to the Companys Quarterly Report for the period ended June 30,
2004 (File No. 1-14537), filed on August 16, 2004).10.10
    
    Promissory Note A in the original amount of $72,000,000.00, dated as of June 25, 2004, by
the Borrowers listed on the signature pages thereto in favor of Merrill Lynch Mortgage
Lending, Inc. (Incorporated by reference to Exhibit 10.1.2 to the Companys Quarterly Report
for the period ended June 30, 2004 (File No. 1-14537), filed on August 16, 2004).
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ExhibitNumber
    
    Description10.11
    
    Promissory Note B in the original amount of $38,000,000, dated as of June 25, 2004, by the
Borrowers listed on the signature pages thereto in favor of Merrill Lynch Mortgage Lending,
Inc. (Incorporated by reference to Exhibit 10.1.3 to the Companys Quarterly Report for the
period ended June 30, 2004 (File No. 1-14537), filed on August 16, 2004).10.12
    
    Loan and Security Agreement (Fixed Rate #1), dated as of June 25, 2004, 2004, by and between
the Borrowers listed on Schedule 1 thereto and Merrill Lynch Mortgage Lending, Inc.
(Incorporated by reference to Exhibit 10.2.1 to the Companys Quarterly Report for the period
ended June 30, 2004 (File No. 1-14537), filed on August 16, 2004).10.13
    
    Promissory Note in the original amount of $63,801,000.00, dated as of June 25, 2004, by the
Borrowers listed on the signature pages thereto in favor of Merrill Lynch Mortgage Lending,
Inc. (Incorporated by reference to Exhibit 10.2.2 to the Companys Quarterly Report for the
period ended June 30, 2004 (File No. 1-14537), filed on August 16, 2004).10.14
    
    Loan and Security Agreement (Fixed Rate #2), dated as of June 25, 2004, by and between the
Borrowers listed on Schedule 1 thereto and Merrill Lynch Mortgage Lending, Inc. (Incorporated
by reference to Exhibit 10.3.1 to the Companys Quarterly Report for the period ended June 30,
2004 (File No. 1-14537), filed on August 16, 2004).10.15
    
    Promissory Note in the original amount of $67,864,000.00, dated as of June 25, 2004, by the
Borrowers listed on the signature pages thereto in favor of Merrill Lynch Mortgage Lending,
Inc. (Incorporated by reference to Exhibit 10.3.2 to the Companys Quarterly Report for the
period ended June 30, 2004 (File No. 1-14537), filed on August 16, 2004).10.16
    
    Loan and Security Agreement (Fixed Rate #3), dated as of June 25, 2004, by and between the
Borrowers listed on Schedule 1 thereto and Merrill Lynch Mortgage Lending, Inc. (Incorporated
by reference to Exhibit 10.4.1 to the Companys Quarterly Report for the period ended June 30,
2004 (File No. 1-14537), filed on August 16, 2004).10.17
    
    Promissory Note in the original amount of $66,818,500.00, dated as of June 25, 2004, by the
Borrowers listed on the signature pages thereto in favor of Merrill Lynch Mortgage Lending,
Inc. (Incorporated by reference to Exhibit 10.4.2 to the Companys Quarterly Report for the
period ended June 30, 2004 (File No. 1-14537), filed on August 16, 2004).10.18
    
    Loan and Security Agreement (Fixed Rate #4), dated as of June 25, 2004, by and between the
Borrowers listed on Schedule 1 thereto and Merrill Lynch Mortgage Lending, Inc. (Incorporated
by reference to Exhibit 10.5.1 to the Companys Quarterly Report for the period ended June 30,
2004 (File No. 1-14537), filed on August 16, 2004).10.19
    
    Promissory Note in the original amount of $61,516,500.00, dated as of June 25, 2004, 2004,
by the Borrowers listed on the signature pages thereto in favor of Merrill Lynch Mortgage
Lending, Inc. (Incorporated by reference to Exhibit 10.5.2 to the Companys Quarterly Report
for the period ended June 30, 2004 (File No. 1-14537), filed on August 16, 2004).10.20
    
    Employment Agreement with W. Thomas Parrington, dated December 18, 2003 (Incorporated by
reference to Exhibit 10.12 to the Companys Annual Report for the period ended December 31,
2003 (File No. 1-14537), filed on March 9, 2004).10.21
    
    Restricted Unit Award Agreement with W. Thomas Parrington, dated as of July 15, 2003
(Incorporated by reference to Exhibit 10.2 to the Companys Quarterly Report for the period
ended March 31, 2004 (File No. 1-14537), filed with the Commission on May 14, 2004).10.22
    
    Restricted Unit Award Agreement with W. Thomas Parrington, dated as of April 9, 2004
(Incorporated by reference to Exhibit 10.2 to the Companys Quarterly Report for the period
ended March 31, 2004 (File No. 1-14537), filed with the Commission on May 14, 2004).10.23
    
    Letter Agreement, dated January 21, 2005, between Thomas W. Parrington and Lodgian, Inc.
related to Mr. Parringtons waiver of his 2004 Annual performance bonus. (Incorporated by
reference to Exhibit 10.26 to the Companys Annual Report for the period ended December 31,
2004 (File No. 1-14537), filed with the Commission on March 23, 2005).
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ExhibitNumber
    
    Description10.24
    
    Employment Agreement between Lodgian, Inc. and Daniel E. Ellis, dated May 2, 2004
(Incorporated by reference to Exhibit 10.4 to the Companys Quarterly Report for the period
ended March 31, 2004 (File No. 1-14537), filed with the Commission on May 14, 2004).10.25
    
    Employment Agreement between Lodgian, Inc. and Manuel E. Artime, dated May 10, 2004
(Incorporated by reference to Exhibit 10.5 to the Companys Quarterly Report for the period
ended March 31, 2004 (File No. 1-14537), filed with the Commission on May 14, 2004).10.26
    
    Release Agreement, dated January 31, 2004, between Manuel E. Artime and Lodgian, Inc.
(Incorporated by reference to Exhibit 10.29 to the Companys Annual Report for the period
ended December 31, 2004 (File No. 1-14537), filed with the Commission on March 23, 2005).10.27
    
    Employment Agreement between Lodgian, Inc. and Michael W. Amaral, dated May 4, 2004
(Incorporated by reference to Exhibit 10.6 to the Companys Quarterly Report for the period
ended March 31, 2004 (File No. 1-14537), filed with the Commission on May 14, 2004).10.28
    
    Employment Agreement between Lodgian, Inc. and Samuel J. Davis, dated May 14, 2004
(Incorporated by reference to Exhibit 10.19 to Amendment No. 2 to the Companys Registration
Statement on Form S-1 (Registration Number 333-113410), filed with the Commission on June 4,
2004.).10.29
    
    Executive Employment Agreement between Lodgian, Inc. and Linda B. Philp, dated February 7,
2005. (Incorporated by reference to Exhibit 10.32 to the Companys Annual Report for the
period ended December 31, 2004 (File No. 1-14537), filed with the Commission on March 23,
2005).10.30
    
    Stock Option Award Agreement, dated January 31, 2005, between Linda B. Philp and Lodgian,
Inc. (Incorporated by reference to Exhibit 10.33 to the Companys Annual Report for the period
ended December 31, 2004 (File No. 1-14537), filed with the Commission on March 23, 2005).10.31
    
    Incentive Stock Option Award Agreement, dated January 31, 2005, between Linda B. Philp and
Lodgian, Inc. (Incorporated by reference to Exhibit 10.34 to the Companys Annual Report for
the period ended December 31, 2004 (File No. 1-14537), filed with the Commission on March 23,
2005).10.32
    
    Incentive Stock Option Award Agreement, dated February 28, 2005, between Daniel G. Owens and
Lodgian, Inc. (Incorporated by reference to Exhibit 10.35 to the Companys Annual Report for
the period ended December 31, 2004 (File No. 1-14537), filed with the Commission on March 23,
2005).10.33
    
    2002 Amended and Restated Stock Incentive Plan of Lodgian, Inc. (Incorporated by reference
to Exhibit 10.5 to Amendment No. 2 to the Companys Registration Statement on Form S-1 (File
No. 333-1113410), filed on June 6, 2004).10.34
    
    First Amendment to the Amended and Restated 2002 Stock Incentive Plan of Lodgian, Inc. dated
April 28, 2005.10.35
    
    Form of Stock Option Award Agreement. (Incorporated by reference to Exhibit 10.37 to the
Companys Annual Report for the period ended December 31, 2004 (File No. 1-14537), filed with
the Commission on March 23, 2005).10.36
    
    Lodgian, Inc. 401(k) Plan, As Amended and Restated Effective September 1, 2003 (Incorporated
by reference to Exhibit 20.1.1 to Amendment No. 2 to the Companys Registration Statement on
Form S-1 (File No. 333-113410), filed on June 6, 2004).10.37
    
    Amendment No. 1 to the Lodgian, Inc. 401(k) Plan (As Amended and Restated Effective
September 1, 2003) (Incorporated by reference to Exhibit 10.3 to the Companys Quarterly
Report for the period ended March 31, 2004 (File No. 1-14537), filed with the Commission on
May 14, 2004).10.38
    
    Amendment No. 2 to the Lodgian, Inc. 401(K) Plan dated March 24, 2005 (As Amended and
Restated Effective as of September 1, 2003).**10.39
    
    Amendment No. 3 to the Lodgian, Inc. 401(K) Plan dated April 28, 2005 (As Amended and
Restated Effective as of September 1, 2003).**10.40
    
    Loan Modification Agreement (Floating Rate) between Merrill Lynch Mortgage Lending, Inc. and
the Borrowers identified on the signature pages thereto dated April 29, 2005.**
 -4-




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##### Table of Contents



ExhibitNumber
    
    Description31.1
    
    Sarbanes-Oxley Section 302
Certification by the CEO**31.2
    
    Sarbanes-Oxley Section 302 Certification by the CFO**32
    
    Sarbanes-Oxley Section 906 Certification by the CEO and CFO.**
   ** Filed herewith. -5-