<PAGE>   1

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

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

                                   FORM 10-Q

(MARK ONE)

    [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934
             FOR THE PERIOD ENDED September 30, 2000

                                       OR

    [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934
             FOR THE TRANSITION PERIOD FROM ________ TO ________

                          COMMISSION FILE NO. 1-11342

                                 LODGIAN, INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                       <C>
                DELAWARE                                       52-2093696
     (State or other jurisdiction of                        (I.R.S. Employer
     incorporation or organization)                        Identification No.)

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

     (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 [ ]    No [X]

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

<TABLE>
<CAPTION>
             CLASS                            OUTSTANDING AS OF January 3, 2001
            -------                           ----------------------------------
            <S>                               <C>
            Common                                        28,139,481
</TABLE>
<PAGE>   2
                         LODGIAN, INC. AND SUBSIDIARIES

              INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----

<S>            <C>                                                          <C>
PART I.   FINANCIAL INFORMATION
Item 1.        Financial Statements:
               Condensed Consolidated Balance Sheets as of September 30,
               2000 and December 31, 1999...................................  1

               Condensed Consolidated Statements of Operations for the
               Three and Nine Months Ended September 30, 2000 and 1999 .....  2

               Condensed Consolidated Statements of Stockholders' Equity
               for the Nine Months Ended September 30, 2000 and for the
               Year Ended December 31, 1999.................................  3

               Condensed Consolidated Statements of Cash Flows for the Nine
               Months Ended September 30, 2000 and 1999.....................  4

               Notes to Condensed Consolidated Financial Statements.........  5

Item 2.        Management's Discussion and Analysis of Financial Condition
               and Results of Operations.................................... 19


PART II.  OTHER INFORMATION

Item 1.        Legal Proceedings............................................ 31

Item 2.        Changes in Securities........................................ 31

Item 6.        Exhibits and Reports on Form 8-K............................. 31

SIGNATURES.................................................................. 33
</TABLE>


                                       i
<PAGE>   3
                        PART I -- FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                         LODGIAN, INC. AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  2000            1999
                                                              -------------   ------------
                                                                      (UNAUDITED)
                                                                     (IN THOUSANDS,
                                                                   EXCEPT SHARE DATA)
<S>                                                           <C>             <C>
                           ASSETS
Current assets:
  Cash and cash equivalents.................................   $   14,516      $   14,644
  Restricted cash...........................................        3,242           2,692
  Accounts receivable, net of allowances....................       27,827          26,520
  Inventories...............................................        8,155           9,190
  Prepaid expenses and other current assets.................       10,936           9,984
                                                               ----------      ----------
          Total current assets..............................       64,676          63,030
Property and equipment, net.................................    1,114,010       1,314,141
Deposits for capital expenditures...........................       14,856          12,357
Other assets, net...........................................       32,495          32,468
                                                               ----------      ----------
                                                               $1,226,037      $1,421,996
                                                               ==========      ==========

             LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................   $   26,659      $   34,332
  Accrued interest..........................................       12,532          13,390
  Other accrued liabilities.................................       39,006          42,783
  Advance deposits..........................................        2,106           2,384
  Current portion of long-term obligations..................       77,754          35,404
                                                               ----------      ----------
          Total current liabilities.........................      158,057         128,293
Long-term obligations, less current portion.................      710,418         856,675
Deferred income taxes.......................................        3,977          33,082
Minority interests:
  Preferred redeemable securities (including related accrued
     interest)..............................................      181,125         175,000
  Other.....................................................        4,012           4,404
                                                               ----------      ----------
          Total liabilities.................................    1,057,589       1,197,454
Commitments and contingencies...............................
Stockholders' equity:
  Common stock, $.01 par value, 75,000,000 shares
     authorized; 28,266,682 and 28,130,325 shares issued and
     outstanding at September 30, 2000 and December 31,
     1999, respectively.....................................          282             281
  Additional paid-in capital................................      263,168         262,760
  Accumulated deficit.......................................      (94,090)        (37,587)
  Accumulated other comprehensive loss......................         (912)           (912)
                                                               ----------      ----------
          Total stockholders' equity........................      168,448         224,542
                                                               ----------      ----------
                                                               $1,226,037      $1,421,996
                                                               ==========      ==========
</TABLE>

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

                                        1
<PAGE>   4
                         LODGIAN, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED                     NINE MONTHS ENDED
                                                 --------------------------------        --------------------------------
                                                  SEPTEMBER 30,     SEPTEMBER 30,        SEPTEMBER 30,      SEPTEMBER 30,
                                                       2000              1999                 2000               1999
                                                  ------------     -------------         -------------      -------------
                                                                     (IN THOUSANDS, EXCEPT SHARE DATA)
                                                                                (UNAUDITED)
<S>                                               <C>               <C>                  <C>                <C>
Revenues:
 Rooms.......................................     $117,425          $116,549             $334,643           $328,212
 Food and beverage...........................       30,772            31,892               98,721            101,018
 Other.......................................        7,007             7,579               21,398             22,457
                                                  --------          --------             --------           --------
    Total revenues...........................      155,204           156,020              454,762            451,687
                                                  --------          --------             --------           --------

Operating expenses:
Direct:
 Rooms.......................................       32,827            33,213               93,326             90,335
 Food and beverage...........................       23,719            23,810               72,402             74,351
 Other.......................................        4,225             4,552               13,142             12,768
General, administrative and other............       56,178            48,864              167,967            145,374
Depreciation and amortization................       16,908            13,102               49,348             40,602
Impairment of long-lived assets..............      (10,712)               --               55,450                 --
Severance and restructuring expenses.........           --                --                1,502                 --
                                                  --------          --------             --------           --------
    Total operating expenses.................      123,145           123,541              453,137            363,430
                                                  --------          --------             --------           --------
                                                    32,059            32,479                1,625             88,257
Other income (expenses):
 Interest income and other...................          467               285                  994              1,102
 Interest expense............................      (24,596)          (20,317)             (74,426)           (57,456)
 Interest hedge break fee....................       (4,294)               --               (4,294)                --
 Loss on asset dispositions, net.............          (21)               --                  (24)                --
Minority interests:
 Preferred redeemable securities.............       (3,063)           (3,338)              (9,190)           (10,152)
 Other.......................................          250             1,310                 (293)                --
                                                  --------          --------             --------           --------
Income (loss) before income taxes and
 extraordinary item..........................          802            10,419              (85,608)            21,751
Provision (benefit) for income taxes.........          275             4,167              (29,105)             8,700
                                                  --------          --------             --------           --------
Income (loss) before extraordinary item......          527             6,252              (56,503)            13,051
Extraordinary item:
Loss on early extinguishment of debt, net of
 income tax benefit of $4,224................           --            (6,336)                  --             (6,336)
                                                  --------          --------             --------           --------
Net income (loss)............................     $   527           $    (84)            $(56,503)           $ 6,715
                                                  ========          ========             ========           ========
Earnings (loss) per common share-basic and
 diluted:
Income (loss) before extraordinary item......     $   0.02          $   0.23             $  (2.01)        $     0.48
Extraordinary item...........................           --             (0.23)                  --         $    (0.23)
                                                  --------          --------             --------           --------
Net income (loss)............................     $   0.02          $     --                (2.01)        $     0.25
                                                  ========          ========             ========           ========
</TABLE>

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


                                       2








<PAGE>   5

                         LODGIAN, INC. AND SUBSIDIARIES

           CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                               RETAINED        ACCUMULATED
                                        COMMON STOCK          ADDITIONAL       EARNINGS           OTHER             TOTAL
                                     -------------------       PAID-IN       (ACCUMULATED     COMPREHENSIVE     STOCKHOLDERS'
                                       SHARES     AMOUNT       CAPITAL         DEFICIT)           LOSS              EQUITY
                                     ----------   ------      ----------     ------------     -------------     -------------

                                                               (IN THOUSANDS, EXCEPT SHARE DATA)
                                                                         (UNAUDITED)

<S>                                  <C>          <C>          <C>           <C>              <C>               <C>
Balance at December 31,
  1998........................       27,937,057     $278        $261,976         $ 23,106           $(1,593)       $283,767
401(k) Plan contribution......          143,160        2             547               --                --             549
Exercise of stock options.....           30,000        1             119               --                --             120
Tax benefit from exercise of
  stock options...............               --       --              20               --                --              20
Director compensation.........           20,108       --              98               --                --              98
Net loss......................               --       --              --          (60,693)               --         (60,693)
Currency translation
  adjustments.................               --       --              --               --               681             681
                                                                                                                   --------
Comprehensive loss............               --       --              --               --                --         (60,012)
                                     ----------     ----        --------         --------           -------        --------
Balance at December 31,
  1999........................       28,130,325      281         262,760          (37,587)             (912)        224,542
401(k) Plan contribution......          127,123        1             373               --                --             374
Director compensation.........            9,234       --              35               --                --              35
Net loss......................               --       --              --          (56,503)               --         (56,503)
Currency translation
  adjustments.................               --       --              --               --                --              --
                                                                                                                   --------
Comprehensive loss............               --       --              --               --                --         (56,503)
                                     ----------     ----        --------         --------           -------        --------
Balance at September 30, 2000        28,266,682     $282        $263,168         $(94,090)          $  (912)       $168,448
                                     ==========     ====        ========         ========           =======        ========

</TABLE>

The  comprehensive  income  for  the  three months ended September 30, 2000  was
$527  and  the  comprehensive  (loss)  and income for the three and nine  months
ended September 30, 1999 was $(84) and $6,679, respectively.

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

                                       3
<PAGE>   6
                         LODGIAN, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                 NINE MONTHS ENDED
                                                                                 -----------------
                                                                         September 30,       September 30,
                                                                             2000                1999
                                                                         -------------       -------------
                                                                                    (UNAUDITED)
                                                                                  (IN THOUSANDS)
<S>                                                                       <C>                 <C>
OPERATING ACTIVITIES:
  Net income (loss) .................................................     $ (56,503)          $   6,715
  Adjustments to reconcile net income (loss) to net cash
     provided by (used in) operating activities:
     Depreciation and amortization ..................................        49,348              40,602
     Loss on asset dispositions, net ................................            24                  --
     Deferred income tax provision (benefit) ........................       (29,105)              4,476
     Minority interests .............................................         6,416                  --
     Impairment of long-lived assets ................................        55,450                  --
     Loss on early extinguishment of debt ...........................            --              10,560
     Other ..........................................................          (944)             (5,455)
     Changes in operating assets and liabilities:
       Accounts receivable ..........................................        (1,307)            (14,660)
       Inventories ..................................................         1,035                  28
       Other current assets .........................................        (1,502)            (19,946)
       Accounts payable .............................................        (7,673)            (26,341)
       Accrued liabilities ..........................................        (4,913)              5,138
                                                                          ---------           ---------
Net cash provided by (used in) operating activities .................        10,326               1,117
                                                                          ---------           ---------
INVESTING ACTIVITIES:
  Capital expenditures, net .........................................       (68,205)            (63,659)
  Acquisitions of property and equipment ............................            --              (1,929)
  Purchase of minority interests ....................................            --             (10,200)
  Proceeds from disposition of assets ...............................       168,898              20,468
  Other .............................................................            --                 371
  Net withdrawals (deposits) for capital expenditures ...............        (2,970)             27,737
                                                                          ---------           ---------
Net cash provided by (used in) investing activities .................        97,723             (27,212)
                                                                          ---------           ---------
FINANCING ACTIVITIES:
  Proceeds from issuance of common stock ............................            --                 120
  Proceeds from issuance of long-term obligations ...................        32,326             477,860
  Principal payments on long-term obligations .......................      (136,520)           (442,299)
  Payments of deferred loan costs ...................................        (3,300)             (4,699)
  Contributions from (distributions to) minority interests ..........          (683)               (690)
                                                                          ---------           ---------
Net cash provided by (used in) financing activities .................      (108,177)             30,292
                                                                          ---------           ---------
Net increase (decrease) in cash and cash equivalents ................          (128)              4,197
Cash and cash equivalents at beginning of period ....................        14,644              19,185
                                                                          ---------           ---------
Cash and cash equivalents at end of period ..........................     $  14,516           $  23,382
                                                                          =========           =========
SUPPLEMENTAL CASH FLOW INFORMATION:
  Cash paid during the period for:
    Interest, net of amount capitalized .............................     $  72,509           $  50,714
                                                                          =========           =========
    Income taxes ....................................................     $     584           $   3,065
                                                                          =========           =========
</TABLE>


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


                                       4
<PAGE>   7
                        LODGIAN, INC. AND SUBSIDIARIES

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


1. GENERAL

         The condensed consolidated financial statements include the accounts of
Lodgian,  Inc.  ("Lodgian" or the "Company"), its wholly-owned subsidiaries  and
five  partnerships  in which Lodgian exercises control. Lodgian believes it  has
control  of  partnerships  when  the  Company  manages  and  has control of  the
partnerships' assets and operations, has the ability and authority to enter into
financing  arrangements  on  behalf  of the entity or to sell the assets of  the
entity  within  reasonable  business  guidelines.  One unconsolidated entity  is
accounted  for  on the equity method. All significant intercompany accounts  and
transactions have been eliminated in consolidation.

         The accounting policies followed for quarterly financial reporting  are
the  same  as  those disclosed in Note 1 of the Notes to Consolidated  Financial
Statements  included  in  the Company's Annual Report on Form 10-K for the  year
ended December 31, 1999.

         In  the  opinion  of  management, the accompanying unaudited  condensed
consolidated financial statements contain all adjustments, consisting  primarily
of  normal  recurring  adjustments,  necessary  to present fairly the  financial
position  of  the  Company  as  of  September  30, 2000, and the results of  its
operations for the three and nine month periods ended September 30, 2000 and its
cash flows for the nine months ended September 30, 2000. The results for interim
periods  are  not  necessarily indicative of results for the entire year.  While
management  believes  that  the  disclosures presented are adequate to make  the
information  not  misleading,  these  financial  statements  should  be read  in
conjunction  with  the  consolidated  financial  statements  and  related  notes
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1999.

         As  previously  reported in the Company's Form 10-K for the year  ended
December  31, 1999, during the fourth quarter of 1999, the Company initiated  an
internal  review of its accounting records. The Company experienced  significant
difficulty  in  the  integration  and  conversion of information and  accounting
systems subsequent to the merger of Servico, Inc. and Impac Hotel Group, LLC  on
December  11,  1998  (the "Merger"). In addition, the Company determined that  a
significant number of reconciliations involving cash, accounts receivable, fixed
assets, accounts payable and other accounts had not been completed during  1999.
As a result of these systems and reconciliation issues, the Company  experienced
a  significant delay in preparing its 1999 annual financial statements.  Certain
charges  were  recorded  in  the  fourth  quarter  of  1999  after  the  account
reconciliation process was completed in 2000.

         Also,  as  previously reported in the Company's Form 10-K for the  year
ended  December  31,  1999,  the Company concluded, after consultation with  its
prior  independent  auditors  that its internal controls for the preparation  of
interim  financial  information did not provide an adequate basis for its  prior
independent  auditors  to  complete  reviews  of  the  1999 quarterly  financial
information  in accordance with standards established by the American  Institute
of Certified Public Accountants. The Company believes that certain charges  that
were  recorded  in  the  fourth  quarter of 1999 may relate to individual  prior
quarters;  however the Company does not have sufficient information to  identify
all specific charges attributable to prior 1999 quarters.

         In the opinion of management, the internal control weaknesses described
above  existed  during  the  first  and second quarters of 2000 and to a  lesser
extent in the third quarter of 2000. These internal control weaknesses caused  a
significant  delay in preparing the Company's September 30, 2000 Form 10-Q.  The
Company   has  committed  substantial  resources  to  mitigate  the   previously
identified  control  weaknesses  including  contracting with outside  consulting
accountants  to ensure the Company has the corporate financial resources  needed


                                       5

<PAGE>   8

                         LODGIAN, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

to provide reasonable assurances that it can comply with the record keeping  and
internal   control  requirements  applicable  to  SEC  registrants.   Management
believes  these  efforts  have  enabled the Company to produce reliable  interim
financial  statements  as  of  September  30,  2000  and for the three and  nine
months  then  ended.  The  Company  is  in  the  process of implementing a  plan
which,  if  successful,  will  enable  the  Company  to  timely comply with  the
financial  statement  reporting  requirements  applicable to SEC registrants  by
the  time  it  is  required  to  file  its 2000 annual financial statements  and
will   have   substantially  developed  and  implemented  an  adequate   control
environment  by  this  date.  As part of this plan, during the third and  fourth
quarters   the   Company  has  implemented  the  following  action  steps;   (i)
developed and implemented numerous new controls and policies, (ii) implemented a
process  to  insure  that material transactions are recorded on a timely  basis,
(iii)  implemented an account closing process so that all material accounts  are
reconciled  and  reviewed  on  a  timely basis and (iv) reorganized and  changed
personnel  in  the accounting and finance functions to improve the accuracy  and
timeliness of the financial accounting processes.

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

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

2. EARNINGS PER SHARE

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

<TABLE>
<CAPTION>

                                                              THREE MONTHS ENDED      NINE MONTHS ENDED
                                                                 SEPTEMBER 30,          SEPTEMBER 30,
                                                              -------------------    -------------------
                                                                2000        1999       2000       1999
                                                              --------   --------    --------   --------
                                                                (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                           <C>        <C>         <C>        <C>
Numerator:
 Income (loss) before extraordinary item.................     $    527   $  6,252    $(56,503)  $ 13,051
 Extraordinary item......................................           --     (6,336)         --     (6,336)
                                                              --------   --------    --------   --------
 Net income (loss).......................................     $    527   $    (84)   $(56,503)  $  6,715
                                                              ========   ========    ========   ========
Denominator:
Denominator for basic and dilutive earnings
 per share-adjusted weighted-average shares..............       28,251     27,282      28,055     27,041
                                                              ========   ========    ========   ========

Basic and diluted earnings per share:
 Income (loss) before extraordinary item.................     $   0.02   $   0.23    $  (2.01)  $   0.48
 Extraordinary item......................................           --      (0.23)         --      (0.23)
                                                              --------   --------    --------   --------
 Net (loss) income.......................................     $   0.02   $     --    $  (2.01)  $   0.25
                                                              ========   ========    ========   ========
</TABLE>

         The  computation  of diluted earnings per share did not include  shares
         associated  with  the assumed conversion of the Convertible  Redeemable
         Equity Structure Trust Securities (CRESTS), employee stock options  and
         contingent shares in connection with the Merger because their inclusion
         would have been antidilutive.

3. ASSETS HELD FOR SALE

         As discussed in footnote 7. and Item 2. Management's Discussion and


                                       6
<PAGE>   9
                         LODGIAN, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Analysis  of  Financial  Condition  and  Results of Operations, the Company  has
adopted  strategic  plans  to  reduce  the size of the Company's non-core  hotel
portfolio  and reduce the level of overall debt of the Company. In this  regard,
the  Company  has  identified and will continue to identify throughout 2000  and
2001  properties  which  will  be  classified  as  held  for sale to meet  these
objectives.

         Impairment  charges  for  the  three  and  nine  month  periods   ended
September    30,    2000    were    $(10.7)    million   and   $55.5    million,
respectively.  During  2000  the Company's first quarter charge of $9.6  million
related  to  revised  estimates  of  fair  value  for  properties held for  sale
at  December  31,  1999  and the second quarter charge of $56.6 million  related
to  the  ten  hotels  sold  to  Sunstone  Investors,  LLC  on  August 31,  2000.
During    the    third    quarter    2000    the   Company   recaptured    $10.7
million   of   impairment   charges   recorded   in  1999  and  2000  as   seven
hotels  previously  considered  held  for  sale  as  of  December  31, 1999  are
no   longer   being   actively   marketed  for  sale.  The  Company  may   incur
additional  impairment  charges  in  the  fourth quarter 2000 and in 2001 as  it
continues  to  identify  properties  to be considered held for sale to meet  the
objectives described.

         Summary   results   of   operations   included  in  the  Statement   of
Operations  with  respect  to  the  properties  identified  as held for sale  at
September 30, 2000 are as follows (in thousands):


<TABLE>
<CAPTION>                                     THREE MONTHS      NINE MONTHS
                                                 ENDED             ENDED
                                             SEPTEMBER 30,     SEPTEMBER 30,
                                                 2000              2000
                                             -------------     -------------

<S>                                          <C>               <C>
Revenues.................................      $ 9,291            $26,635
                                               =======            =======
Income (loss) before taxes...............      $ 1,289(1)        $ (2,242)(1)
                                               =======            =======
</TABLE>
-------------

         (1)  Includes  impairment  charge  of  $0.0  million and $8.5  million,
respectively.

         Included in property and equipment, net at September 30, 2000 is  $62.1
million  related  to  properties  identified  as held for sale at September  30,
2000.

4. COMMITMENTS AND CONTINGENCIES

         In  July 1999, a contractor hired by Servico to perform work on  hotels
in  New  York,  Illinois and Texas filed a complaint against the Company in  the
Supreme  Court  of  the  State  of  New  York,  claiming breach of contract  and
quantum  meruit,  among other claims. The contractor seeks damages totaling  $80
million,  including  $60  million  punitive  damages.  The Company answered  the
complaint  asserting  counterclaims  aggregating  $20  million and  successfully
filed  a  motion  to  dismiss  the  claims related to two properties located  in
Illinois  and  Texas.  In  October  1999,  a  subcontractor  filed a lawsuit  in
Texas   against   the  above  contractor  and  the  Company.  The  Company   has
filed  an  answer  and cross-claim against the contractor in the amount of  $2.8
million.  In  February  2000,  the contractor filed a lawsuit in Texas  claiming
over  $3  million  in  actual  damages  and  an  undisclosed amount of  punitive
damages.    The    Company    answered    the    complaint   and   asserted    a
counterclaim.   The   Company   has   also   filed   a   lawsuit   against   the
contractor  in  Federal  District  Court  in  Illinois, seeking $2 million.  The
contractor  has  filed  an  answer and counterclaim aggregating $2.8 million  in
actual  damages  and  $10  million  in  punitive  damages. The Company  believes
that  it  has  valid  defenses  and  counterclaims  in  these  matters and  that
the    outcome   will   not   have   a   material   adverse   effect   on    its
financial position or results of operations.

                                       7

<PAGE>   10
                         LODGIAN, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

         On  October  13,  2000,   Winegardner  &  Hammons, Inc. ("WH") filed an
arbitration claim against the Company claiming breach of contract relating to  a
January  4,  1992  contract.  WH  claims  entitlement  to  profit  participation
relating  to  the  sale  of  certain  hotel  properties  by  an  affiliate   and
predecessor of the Company. Although the Demand for Arbitration does not make  a
specific  damages  demand,  it  is  believed  that WH is claiming  approximately
$1,100,000  from  the  Company. Lodgian believes it has meritorious defenses  to
this matter and is defending it vigorously.

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

5.       NEW ACCOUNTING PRONOUNCEMENTS

         In  June 1998, the FASB issued SFAS No. 133, Accounting for  Derivative
Instruments  and  Hedging Activities ("SFAS No. 133"). SFAS No. 133  establishes
accounting  and  reporting  standards  for  derivative  instruments,   including
certain derivative instruments embedded in other contracts, and derivatives used
for  hedging  purposes.  SFAS  No.  133  requires  that  entities recognize  all
derivative  financial  instruments  as  either  assets  or  liabilities  in  the
statement  of  financial  position and measure those instruments at fair  value.
SFAS  No. 133, as amended by SFAS No. 137 and 138, is effective for the  Company
in  its  first  fiscal quarter 2001. The Company doesn't presently believe  that
the  adoption  of  SFAS No. 133 will have a significant effect on its  financial
position or its results of operations.

         In  December 1999, the Securities and Exchange Commission issued  Staff
Accounting  Bulletin  No.  101  ("SAB  101"), "Revenue Recognition in  Financial
Statements," which addresses revenue recognition issues. SAB 101 is required  to
be  adopted  for the quarter ending December 31, 2000. The Company has  assessed
the types of transactions that may be impacted by this pronouncement. The impact
of SAB 101 on the financial statements of the Company will not be material.

6.       SUPPLEMENTAL GUARANTOR INFORMATION

         In  connection  with  the  Company's  sale  of $200 million of 12  1/4%
Senior  Subordinated Notes (the "Notes") in July 1999, certain of the  Company's
subsidiaries  (the  "Subsidiary  Guarantors")  have  guaranteed  the   Company's
obligations  to  pay  principal  and  interest  with respect to the Notes.  Each
Subsidiary  Guarantor  is  wholly-owned  and  management  has  determined   that
separate financial statements for the Subsidiary Guarantors are not material  to
investors.  The  subsidiaries of the Company that are not Subsidiary  Guarantors
are referred to in the note as the "Non-Guarantor Subsidiaries".

         The   following   supplemental   condensed   consolidating    financial
statements  present  balance  sheets  as of September 30, 2000 and December  31,
1999 and statements of operations for the three and nine months ended  September
30,  2000  and  1999 and the statements of cash flows for the nine months  ended
September 30, 2000  and  1999.   In   the   condensed   consolidating  financial
statements,  Lodgian,   Inc.  (the  "Parent")  accounts  for  its investments in
wholly  owned subsidiaries using the equity method.

                                       8
<PAGE>   11

                         LODGIAN, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                         LODGIAN, INC. AND SUBSIDIARIES

                     CONDENSED CONSOLIDATING BALANCE SHEET
                               SEPTEMBER 30, 2000


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

                                                   ASSETS
<S>                                     <C>         <C>          <C>             <C>            <C>
Current Assets:
  Cash and cash equivalents............ $      59   $  20,661      $  (6,204)      $     --      $   14,516
  Restricted cash......................        --          --          3,242             --           3,242
  Accounts receivable, net of
    allowances.........................        --      12,173         15,654             --          27,827
  Inventories..........................        --       3,679          4,476             --           8,155
  Prepaid expenses and other current
    assets.............................     2,254         141          8,541             --          10,936
                                        ---------   ---------      ---------       --------      ----------
        Total current assets...........     2,313      36,654         25,709             --          64,676
Property and equipment, net............        --     596,160        517,850             --       1,114,010
Deposits for capital expenditures......        --       3,645         11,211             --          14,856
Investment in consolidated
  entities.............................  (264,817)         --             --        264,817              --
Due from (to) affiliates...............   439,781    (242,179)      (197,602)            --              --
Other assets, net......................        36      18,431         14,028             --          32,495
                                        ---------   ---------      ---------       --------      ----------
                                        $ 177,313   $ 412,711      $ 371,196       $264,817      $1,226,037
                                        =========   =========      =========       ========      ==========

                                   LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Accounts payable..................... $      --   $  16,813      $   9,846       $     --      $   26,659
  Accrued interest.....................        --      11,546            986             --          12,532
  Other accrued liabilities............        --       9,698         29,308             --          39,006
  Advance deposits.....................        --       1,113            993             --           2,106
  Current portion of long-term
    obligations........................        --      62,400         15,354             --          77,754
                                        ---------   ---------      ---------       --------      ----------
        Total current
          liabilities..................        --     101,570         56,487             --         158,057
Long-term obligations, less current
  portion..............................     3,976     388,315        318,127             --         710,418
Deferred income taxes..................     3,977          --             --             --           3,977
Minority interests:
  Preferred redeemable securities
    (including related accrued
    interest)..........................        --          --        181,125             --         181,125
  Other................................        --          --          4,012             --           4,012
                                        ---------   ---------      ---------       --------      ----------
        Total liabilities..............     7,953     489,885        559,751             --       1,057,589
                                        ---------   ---------      ---------       --------      ----------
Commitments and contingencies..........
Stockholders' equity:
  Common stock.........................       282          33            441           (474)            282
  Additional paid-in capital...........   263,168      22,619        (42,085)        19,466         263,168
  Accumulated deficit..................   (94,090)    (98,914)      (146,911)       245,825         (94,090)
  Accumulated other comprehensive
    loss...............................        --        (912)            --             --            (912)
                                        ---------   ---------      ---------       --------      ----------
        Total stockholders'
          equity (deficit).............   169,360     (77,174)      (188,555)       264,817         168,448
                                        ---------   ---------      ---------       --------      ----------
                                        $ 177,313   $ 412,711      $ 371,196       $264,817      $1,226,037
                                        =========   =========      =========       ========      ==========
</TABLE>


                                       9
<PAGE>   12

                         LODGIAN, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                         LODGIAN, INC. AND SUBSIDIARIES

                     CONDENSED CONSOLIDATING BALANCE SHEET
                               DECEMBER 31, 1999

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

                                                               ASSETS
<S>                                       <C>              <C>               <C>                 <C>                 <C>
Current assets:
  Cash and cash equivalents.............  $      59        $   9,910         $   4,675           $     --            $   14,644
  Restricted cash.......................         --               --             2,692                 --                 2,692
  Accounts receivable, net..............         --            8,257            18,263                 --                26,520
  Inventories...........................         --            4,116             5,074                 --                 9,190
  Prepaid expenses and other current
    assets..............................      2,342               64             7,578                 --                 9,984
                                          ---------        ---------         ---------           --------            ----------
        Total current assets............      2,401           22,347            38,282                 --                63,030
Property and equipment, net.............         --          610,854           703,287                 --             1,314,141
Deposit for capital expenditures........         --               --            12,357                 --                12,357
Investment in consolidated entities.....   (208,123)              --                --            208,123                    --
Due from (to) affiliates................    467,811         (246,793)         (221,018)                --                    --
Other assets, net.......................        136           18,762            13,570                 --                32,468
                                          ---------        ---------         ---------           --------            ----------
                                          $ 262,225        $ 405,170         $ 546,478           $208,123            $1,421,996
                                          =========        =========         =========           ========            ==========
                                                LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable......................  $      --        $  13,471         $  20,861           $     --            $   34,332
  Accrued interest......................         --           12,310             1,080                 --                13,390
  Other accrued liabilities.............         --            7,318            35,465                 --                42,783
  Advance deposits......................         --            1,088             1,296                 --                 2,384
  Current portion long-term
    obligations.........................         --           27,400             8,004                 --                35,404
                                          ---------        ---------         ---------           --------            ----------
        Total current liabilities.......                      61,587            66,706                 --               128,293
Long-term obligations, less current
  portion...............................      3,689          411,761           441,225                 --               856,675
Deferred income taxes...................     33,082               --                --                 --                33,082
Minority interests:
  Preferred redeemable securities.......         --               --           175,000                 --               175,000
  Other.................................         --               --             4,404                 --                 4,404
                                          ---------        ---------         ---------           --------            ----------
        Total liabilities...............     36,771          473,348           687,335                 --             1,197,454
                                          ---------        ---------         ---------           --------            ----------
Commitments and contingencies...........

Stockholders' equity:
  Common stock..........................        281               33               440               (473)                  281
  Additional paid-in capital............    262,760           22,619           (41,893)            19,274               262,760
  Accumulated deficit...................    (37,587)         (89,918)          (99,404)           189,322               (37,587)
  Accumulated other comprehensive
    loss................................         --             (912)               --                 --                  (912)
                                          ---------        ---------         ---------           --------            ----------
        Total stockholders' equity
          (deficit).....................    225,454          (68,178)         (140,857)           208,123               224,542
                                          ---------        ---------         ---------           --------            ----------
                                          $ 262,225        $ 405,170         $ 546,478           $208,123            $1,421,996
                                          =========        =========         =========           ========            ==========
</TABLE>


                                       10
<PAGE>   13


                         LODGIAN, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                         LODGIAN, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                     THREE MONTHS ENDED SEPTEMBER 30, 2000


<TABLE>
<CAPTION>
                                                       SUBSIDIARY    NON-GUARANTOR                       TOTAL
                                             PARENT    GUARANTORS    SUBSIDIARIES     ELIMINATIONS    CONSOLIDATED
                                             ------    ----------    -------------    ------------    ------------
                                                                     (UNAUDITED)
                                                                    (IN THOUSANDS)
<S>                                          <C>       <C>          <C>               <C>             <C>
Revenues:
  Rooms..................................     $ --      $ 52,189        $ 65,236         $  --          $117,425
  Food and beverage......................       --        13,033          17,739            --            30,772
  Other..................................       --         2,633           4,374            --             7,007
                                              ----      --------        --------         -----          --------
        Total revenues...................       --        67,855          87,349            --           155,204
                                              ----      --------        --------         -----          --------
Operating expenses:
Direct:
  Rooms.................................        --        14,747          18,080            --            32,827
  Food and beverage.....................        --        10,085          13,634            --            23,719
  Other.................................        --         1,856           2,369            --             4,225
General, administrative and other.......        --        23,203          32,975            --            56,178
Depreciation and amortization...........        --         7,244           9,664            --            16,908
Impairment of long-lived assets.........        --        (5,396)         (5,316)           --           (10,712)
                                              ----      --------        --------         -----          --------
        Total operating expenses........        --        51,739          71,406            --           123,145
                                              ----      --------        --------         -----          --------
                                                --        16,116          15,943            --            32,059
Other income (expenses):
  Interest income and other.............        --            --             467            --               467
  Interest expense......................        --       (14,547)        (10,049)           --           (24,596)
  Interest hedge break fee..............        --            --          (4,294)           --            (4,294)
  Gain (loss) on asset dispositions, net        --            56             (77)           --               (21)
  Equity in income of consolidated
    subsidiaries........................       802            --              --          (802)               --
Minority interests:
  Preferred redeemable securities.......        --            --          (3,063)           --            (3,063)
  Other.................................        --            --             250            --               250
                                              ----      --------        --------         -----          --------
Income (loss) before income taxes.......       802         1,625            (823)         (802)              802
Provision (benefit) for income taxes....       275           597            (322)         (275)              275
                                              ----      --------        --------         -----          --------
Net income (loss).......................      $527      $  1,028        $   (501)        $(527)         $    527
                                              ====      ========        ========         =====          ========
</TABLE>


                                       11
<PAGE>   14
                         LODGIAN, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                         LODGIAN, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                     THREE MONTHS ENDED SEPTEMBER 30, 1999

<TABLE>
<CAPTION>
                                                        SUBSIDIARY       NON-GUARANTOR                              TOTAL
                                           PARENT       GUARANTORS       SUBSIDIARIES        ELIMINATIONS       CONSOLIDATED
                                           ------       ----------       -------------       ------------       ------------
                                                                              (UNAUDITED)
                                                                            (IN THOUSANDS)
<S>                                        <C>          <C>              <C>                 <C>                <C>
Revenues:
 Rooms.................................     $  --        $53,082          $ 63,467              $  --            $116,549
 Food and beverage.....................        --         13,835            18,057                 --              31,892
 Other.................................        --          3,151             4,428                 --               7,579
                                            -----        -------          --------              -----            --------
    Total revenues.....................        --         70,068            85,952                 --             156,020
                                            -----        -------          --------              -----            --------
Operating expenses:
Direct:
 Rooms.................................        --         14,092            19,121                 --              33,213
 Food and beverage.....................        --         10,237            13,573                 --              23,810
 Other.................................        --          2,197             2,355                 --               4,552
General, administrative and other......        --         23,857            25,007                 --              48,864
Depreciation and amortization..........        --          3,866             9,236                 --              13,102
                                            -----        -------          --------              -----            --------
    Total operating expenses...........        --         54,249            69,292                 --             123,541
                                            -----        -------          --------              -----            --------
                                               --         15,819            16,660                 --              32,479
Other income (expenses):
 Interest income and other.............        --             --               285                 --                 285
 Interest expense......................        --         (8,420)          (11,897)                --             (20,317)
 Equity in loss of consolidated
   subsidiaries........................      (141)            --               --                 141                  --
Minority interests:
 Preferred redeemable securities.......        --             --            (3,338)                --              (3,338)
 Other.................................        --             --             1,310                 --               1,310
                                            -----        -------          --------              -----            --------
(Loss) income before income taxes and
 extraordinary item....................      (141)         7,399             3,020                141              10,419
(Benefit) provision for income taxes...       (57)         3,923               244                 57               4,167
                                            -----        -------          --------              -----            --------
Net (loss) income before extraordinary
 item..................................       (84)         3,476             2,776                 84               6,252
Extraordinary item:
Loss on early extinguishment of debt,
 net of income tax benefit of $4,224...        --         (5,777)             (559)                --              (6,336)
                                            -----        -------          --------              -----            --------
Net (loss) income......................     $ (84)       $(2,301)         $  2,217              $  84            $    (84)
                                            =====        =======          ========              =====            ========
</TABLE>


                                       12

<PAGE>   15
                         LODGIAN, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                         LODGIAN, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                      NINE MONTHS ENDED SEPTEMBER 30, 2000


<TABLE>
<CAPTION>
                                                               SUBSIDIARY         NON-GUARANTOR                            TOTAL
                                              PARENT           GUARANTORS         SUBSIDIARIES        ELIMINATIONS      CONSOLIDATED
                                              ------           ----------         -------------       ------------      ------------
                                                                                   (UNAUDITED)
                                                                                  (IN THOUSANDS)
<S>                                          <C>                <C>               <C>                 <C>               <C>
Revenues:
  Rooms ..................................   $     --           $148,723             $185,920            $    --          $334,643
  Food and beverage ......................         --             42,219               56,502                 --            98,721
  Other ..................................         --              8,484               12,914                 --            21,398
                                             --------           --------             --------            -------          --------
            Total revenues................         --            199,426              255,336                 --           454,762
                                             --------           --------             --------            -------          --------
Operating expenses:
  Direct:
  Rooms ..................................         --             41,934               51,392                 --            93,326
  Food and beverage ......................         --             30,824               41,578                 --            72,402
  Other ..................................         --              5,843                7,299                 --            13,142
General, administrative and other ........         --             69,410               98,557                 --           167,967
Depreciation and amortization ............         --             19,507               29,841                 --            49,348
Impairment of long-lived assets ..........         --              3,404               52,046                 --            55,450
Severance and restructuring charges ......         --                 --                1,502                 --             1,502
                                             --------           --------             --------            -------          --------
            Total operating expenses .....         --            170,922              282,215                 --           453,137
                                             --------           --------             --------            -------          --------
                                                   --             28,504              (26,879)                --             1,625
Other income (expenses):
  Interest income and other ..............         --                 --                  994                 --               994
  Interest expense .......................         --            (42,120)             (32,306)                --           (74,426)
  Interest hedge break fee ...............         --                 --               (4,294)                --            (4,294)
  Gain (loss) on asset dispositions, net..         --                 53                  (77)                --               (24)
  Equity in loss of consolidated
     subsidiaries ........................    (85,608)                --                   --             85,608                --
Minority interests:
  Preferred redeemable securities ........         --                 --               (9,190)                --            (9,190)
  Other ..................................         --                 --                 (293)                --              (293)
                                             --------           --------             --------            -------          --------
Loss before income taxes .................    (85,608)           (13,563)             (72,045)            85,608           (85,608)
Benefit for income taxes .................    (29,105)            (4,567)             (24,538)            29,105           (29,105)
                                             --------           --------             --------            -------          --------
Net loss .................................   $(56,503)          $ (8,996)            $(47,507)           $56,503          $(56,503)
                                             ========           ========             ========            =======          ========
</TABLE>


                                       13


<PAGE>   16
                         LODGIAN, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                         LODGIAN, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                      NINE MONTHS ENDED SEPTEMBER 30, 1999


<TABLE>
<CAPTION>
                                                             SUBSIDIARY         NON-GUARANTOR                         TOTAL
                                               PARENT        GUARANTORS          SUBSIDIARIES     ELIMINATIONS     CONSOLIDATED
                                               ------        ----------         -------------     ------------     ------------
                                                                                 (UNAUDITED)
                                                                                (IN THOUSANDS)
<S>                                           <C>            <C>                <C>               <C>              <C>
Revenues:
 Rooms.....................................   $    --         $152,063             $176,149          $     --         $328,212
 Food and beverage.........................        --           44,636               56,382                --          101,018
 Other.....................................        --            9,680               12,777                --           22,457
                                              -------         --------             --------          --------         --------
    Total revenues.........................        --          206,379              245,308                --          451,687
                                              -------         --------             --------          --------         --------
Operating expenses:
Direct:
 Rooms.....................................        --           39,184               51,151                --           90,335
 Food and beverage.........................        --           32,397               41,954                --           74,351
 Other.....................................        --            6,188                6,580                --           12,768
General, administrative and other..........        --           68,967               76,407                --          145,374
Depreciation and amortization..............        --           12,668               27,934                --           40,602
                                              -------         --------             --------          --------         --------
    Total operating expenses...............        --          159,404              204,026                --          363,430
                                              -------         --------             --------          --------         --------
                                                   --           46,975               41,282                --           88,257
Other income (expenses):
 Interest income and other.................        --               --                1,102                --            1,102
 Interest expense..........................        --          (23,518)             (33,938)               --          (57,456)
 Equity in income of consolidated
  subsidiaries.............................    11,191               --                   --           (11,191)              --
Minority interests:
 Preferred redeemable securities...........        --               --              (10,152)               --          (10,152)
                                              -------         --------             --------          --------         --------
Income (loss) before income taxes and
 extraordinary item........................    11,191           23,457               (1,706)          (11,191)          21,751
Provision (benefit) for income taxes.......     4,476            9,382                 (682)           (4,476)           8,700
                                              -------         --------             --------          --------         --------
Income (loss) before extraordinary item....     6,715           14,075               (1,024)           (6,715)          13,051
Extraordinary item:
Loss on early extinguishment of debt,
 net of income tax benefit of $4,224.......        --           (5,777)                (559)               --           (6,336)
                                              -------         --------             --------          --------         --------
Net income (loss)..........................   $ 6,715         $  8,298             $ (1,583)         $ (6,715)        $  6,715
                                              =======         ========             ========          ========         ========
</TABLE>


                                       14
<PAGE>   17

                         LODGIAN, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                         LODGIAN, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                      NINE MONTHS ENDED SEPTEMBER 30, 2000

<TABLE>
<CAPTION>
                                                             PARENT AND       SUBSIDIARY       NON-GUARANTOR         TOTAL
                                                            ELIMINATIONS      GUARANTORS       SUBSIDIARIES      CONSOLIDATED
                                                            ------------      ----------       -------------      ------------
                                                                                       (UNAUDITED)
                                                                                      (IN THOUSANDS)
<S>                                                         <C>               <C>              <C>               <C>
OPERATING ACTIVITIES:
Net income (loss) ....................................        $     --         $  (8,996)        $ (47,507)       $ (56,503)
Adjustments to reconcile net income (loss) to net
 cash provided by (used in) operating activities:
 Depreciation and amortization .......................              --            19,507            29,841           49,348
 Gain (loss) on asset dispositions, net ..............              --               (53)               77               24
 Deferred income tax provision (benefit) .............         (29,105)               --                --          (29,105)
 Minority interests ..................................              --                --             6,416            6,416
 Impairment of long-lived assets .....................              --             3,404            52,046           55,450
 Other ...............................................             375               (28)           (1,291)            (944)
Changes in operating assets and liabilities:
 Accounts receivable .................................              --            (3,916)            2,609           (1,307)
 Inventories .........................................              --               437               598            1,035
 Other current assets ................................              --               (77)           (1,425)          (1,502)
 Accounts payable ....................................              --             3,342           (11,015)          (7,673)
 Accrued liabilities .................................              --             1,641            (6,554)          (4,913)
                                                              --------         ---------         ---------        ---------
 Net cash provided by (used in) operating
   activities ........................................         (28,730)           15,261            23,795           10,326
                                                              --------         ---------         ---------        ---------
INVESTING ACTIVITIES:
  Capital expenditures, net ..........................              --           (43,539)          (24,666)         (68,205)
  Proceeds from asset dispositions ...................              --            37,225           131,673          168,898
  Net withdrawals (deposits) for capital
    expenditures......................................              --            (3,645)              675           (2,970)
                                                              --------         ---------         ---------        ---------
  Net cash provided by (used in) investing
    activities .......................................              --            (9,959)          107,682           97,723
                                                              --------         ---------         ---------        ---------
FINANCING ACTIVITIES:
  Proceeds from issuance of long-term
   obligations .......................................              --            30,000             2,326           32,326
  Proceeds received from (paid to) related
   parties ...........................................          28,730            (4,614)          (24,116)              --
  Principal payments on long-term obligations ........              --           (18,537)         (117,983)        (136,520)
  Payments of deferred loan costs ....................              --            (1,400)           (1,900)          (3,300)
  Contributions from (distributions to) minority
   interests .........................................              --                --              (683)            (683)
                                                              --------         ---------         ---------        ---------
  Net cash provided by (used in) financing
   activities ........................................          28,730             5,449          (142,356)        (108,177)
                                                              --------         ---------         ---------        ---------
Net increase (decrease) in cash and cash
  equivalents ........................................              --            10,751           (10,879)            (128)
Cash and cash equivalents at beginning of
  period .............................................              59             9,910             4,675           14,644
                                                              --------         ---------         ---------        ---------
Cash and cash equivalents at end of period ...........        $     59         $  20,661         $  (6,204)       $  14,516
                                                              ========         =========         =========        =========
</TABLE>


                                       15

<PAGE>   18

                         LODGIAN, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                         LODGIAN, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                      NINE MONTHS ENDED SEPTEMBER 30, 1999


<TABLE>
<CAPTION>
                                                             PARENT AND       SUBSIDIARY       NON-GUARANTOR        TOTAL
                                                            ELIMINATIONS      GUARANTORS       SUBSIDIARIES      CONSOLIDATED
                                                            ------------      ----------       ------------      ------------
                                                                                       (UNAUDITED)
                                                                                      (IN THOUSANDS)
<S>                                                         <C>               <C>              <C>               <C>
OPERATING ACTIVITIES:
Net income (loss) ....................................        $     --         $   8,298         $  (1,583)        $   6,715
Adjustments to reconcile net income (loss) to
 net cash provided by (used in) operating
 activities:
 Loss on extinguishment of debt ......................              --             5,777             4,783            10,560
 Depreciation and amortization .......................              --            12,668            27,934            40,602
 Deferred income tax provision .......................           4,476                --                --             4,476
 Other ...............................................              --            11,246           (16,701)           (5,455)
Changes in operating assets and liabilities:
 Accounts receivable .................................              --           (11,977)           (2,683)          (14,660)
 Inventories .........................................              --                25                 3                28
 Other current assets ................................             759             2,458           (23,163)          (19,946)
 Accounts payable ....................................            (132)           (8,343)          (17,866)          (26,341)
 Accrued liabilities .................................              --            17,121           (11,983)            5,138
                                                              --------         ---------         ---------         ---------
 Net cash provided by (used in) operating
   activities ........................................           5,103            37,273           (41,259)            1,117
                                                              --------         ---------         ---------         ---------
INVESTING ACTIVITIES:
  Capital expenditures, net ..........................              --            (5,001)          (58,658)          (63,659)
  Acquisition of property and equipment ..............              --                --            (1,929)           (1,929)
  Purchase of minority interests .....................              --                --           (10,200)          (10,200)
  Proceeds from disposition of assets ................              --                --            20,468            20,468
  Other ..............................................              --                --               371               371
  Net withdrawals (deposits) for capital
    expenditures .....................................              --             4,460            23,277            27,737
                                                              --------         ---------         ---------         ---------
  Net cash provided by (used in) investing
    activities .......................................              --              (541)          (26,671)          (27,212)
                                                              --------         ---------         ---------         ---------
FINANCING ACTIVITIES:
  Proceeds from issuance of long-term
    obligations ......................................              --                --           477,860           477,860
  Proceeds received from (paid to) related
    parties ..........................................          (6,692)          187,154          (180,462)               --
  Net proceeds from issuance of common stock .........              --                --               120               120
  Principal payments on long-term obligations ........              --          (252,846)         (189,453)         (442,299)
  Payments of deferred loan costs ....................              --                --            (4,699)           (4,699)
  Contributions from (distributions to) minority
    interests ........................................              --                --              (690)             (690)
                                                              --------         ---------         ---------         ---------
  Net cash provided by (used in) financing
   activities ........................................          (6,692)          (65,692)          102,676            30,292
                                                              --------         ---------         ---------         ---------
Net increase (decrease) in cash and cash
 equivalents .........................................          (1,589)          (28,960)           34,746             4,197
Cash and cash equivalents at beginning of
 period ..............................................           1,648             7,140            10,397            19,185
                                                              --------         ---------         ---------         ---------
Cash and cash equivalents at end of period ...........        $     59         $ (21,820)        $  45,143         $  23,382
                                                              ========         =========         =========         =========
</TABLE>


                                       16
<PAGE>   19
                         LODGIAN, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7.       FACTORS AFFECTING BUSINESS

         During  the  past  twelve months, the Company's Board of Directors  has
adopted   strategic   plans   that  are  intended  to  enhance  value  for   its
shareholders. At the end of 1999 the Company adopted a strategic plan to  reduce
the  size  of  the  Company's  non-core  hotel  portfolio. In 2000, the  Company
adopted a strategic plan to reduce the level of overall debt of the Company  and
retained  an investment banker to review its strategic alternatives. As part  of
that  review the Company is pursuing a sale of the Company. With regard to  this
strategic  alternative  the  Company  had received offers from Whitehall  Street
Real Estate Partnership ("Whitehall") and Edgecliff Holdings, LLC  ("Edgecliff")
to  acquire  the  Company.  On  December  26, 2000, the Company entered into  an
Exclusivity  Agreement  with  Edgecliff.  Under  the  terms  of the  Exclusivity
Agreement  the  Company has granted Edgecliff an exclusive 60-day period  during
which  the  two  parties  will attempt to negotiate a definitive agreement,  and
Edgecliff  will  complete its due diligence review; Edgecliff has agreed not  to
make an offer to purchase the Company at any time during the next 12 months  for
less than $4.75 per share; Lodgian may continue to sell specified assets  during
the  exclusivity  period;  Lodgian  is  permitted to consider other  unsolicited
offers  for  the  Company  if  the Lodgian board concludes that such offers  are
superior to Edgecliff's proposal; and the Company is not obligated to  reimburse
Edgecliff  for  any  of  its  expenses, nor is the Company obligated to pay  any
break-up  fee  should the Company pursue another transaction. During the  fourth
quarter,  per  the  October  12,  2000 exclusivity agreement with Whitehall, the
Company  recorded  a  charge  of  $3.5 million relating to reimbursing Whitehall
the  expenses  it  incurred  in  connection  with  evaluating  and  pursuing the
transaction. The Company is unable to predict whether the Exclusivity  Agreement
entered into with Edgecliff will ultimately result in  an  actual  sale  of  the
Company.

         In July 1999, the Company sold $200 million of Notes. In addition,  the
Company  entered into a new, multi-tranche senior secured loan credit  facility.
The  facility  consists  of  development  loans  with a maximum capacity of  $75
million  (the  tranche A and C loans), a $240 million tranche B term loan and  a
$50  million  revolving credit facility. The tranche A and C loans will be  used
for  hotel  development  projects.  The tranche B loan, along with the  proceeds
from  the  Notes was used to repay the loan from Lehman Brothers Holding,  Inc.,
("Lehman")  and,  in September, a $132.5 million loan (one of three  facilities)
from  Nomura  Asset  Capital  Corporation.  These  financings  contain   various
financial  covenants,  coverage  ratios and payment restrictions with which  the
Company  was  in  compliance at September 30, 2000 or which have been waived  by
the lenders. Payment restrictions contained in the Company's Notes required  the
Company to defer dividend payments with respect to the CRESTS beginning June 30,
2000. Pursuant to the terms of the agreement the Company has the right  to defer
the  dividend  payment for up to 20 quarters.  The Company  does  not anticipate
resumption  of  the  quarterly  dividend  payment  on  the  CRESTS  in  the near
future.

         The Company was unable to deliver its 1999 annual audited and March 31,
and  June  30,  2000  quarterly  unaudited  financial  statements to its  Senior
Secured  loan  facility  lenders  on a timely basis. The Company has received  a
waiver  for the late delivery of these financial statements and the time  period
for  delivery  of  quarterly  2000  financial  statements has been extended.  In
addition, on July 31, 2000, the Company entered into an amendment to its  Senior
Secured loan credit facility which provides for a 0.50% increase in the interest
rate,  termination  of  the tranche A facility which reduces the maximum  credit
facility  by  $25  million  and  provides  for  additional amortization  payment
requirements  for  tranche  B  term  loans  of  (i)  $25 million on or prior  to
December  31, 2000, (ii) an additional $35 million on or prior to June 30,  2001
and  (iii) an additional $40 million on or prior to December 31, 2001. Prior  to
the  amendment,  amortization payment requirements were effectively 1% per  year
of  the  outstanding  tranche  B  term  loans during that period. The  amendment
modifies various covenants and coverage ratios, with which the Company  believes
it is in  compliance  or  which  have  been waived by the lenders. The amendment
provides  for  immediate  access  to  the  $25  million  unused  portion of  the
revolving  credit  facility  and provides increased flexibility for the sale  of
hotel  assets. The Company paid an amendment fee of approximately $1.4  million.
As  of  December  31,  2000 the Company has paid fully the $25 million  required
amortization  payment  due  December 31, 2000 and  has paid approximately  $10.2


                                       17
<PAGE>   20

million of the $35 million required amortization payment due June 30, 2001.

         The  Company  has  adopted  strategic  plans to reduce the size of  the
Company's  non-core  hotel portfolio and reduce the overall level of debt.  With
regard  to these strategic plans the Company has sold nineteen hotel  properties
and four other assets from January 1, to December 31, 2000. Gross sales price of
these twenty three properties was $209.1 million while the reduction of debt was
$154.9  million. The balance was used primarily to support capital  expenditures
related to major renovation projects and the construction of one new hotel.

         The   Company   will  continue  to  explore  potential  property   sale
transactions in addition to those discussed above. Certain of these transactions
include  hotels other than those identified for sale currently. The  discussions
with  potential  purchasers  are  in various stages, including the execution  of
preliminary agreements in a few situations. Those transactions where preliminary
agreements  have  been  reached  are  subject to, among other things, buyer  due
diligence  and financing and the cooperation of the Company's existing  lenders.
Accordingly,  the  Company is unable to predict whether any of the  transactions
being considered will result in an actual sale. The majority of the net proceeds
from any completed sales will be used to reduce debt.

         In  June  2000,  the Company in an effort to reduce corporate  overhead
expenses instituted a plan to close four of the six regional offices, close  the
Company's  reservation  center  located in Baton Rouge, Louisiana and  eliminate
certain  positions  in  the  corporate  office. Approximately 65 employees  were
terminated   in   this  restructuring.  The  Company  recognized  a  charge   of
approximately $1.5 million at June 30, 2000 to implement this plan. Of the  $1.5
million charge approximately $1.3 million was related to salary and benefits  of
the  terminated  employees  and  $.2 million related to the costs of closing the
physical  regional  offices  and  the  reservation center. During the third  and
fourth  quarters  of 2000 $1.3 million and $.2 million was charged against  this
accrual, respectively.

         On  August  31,  2000,  in  conjunction  with  the sale of ten  hotels,
principally  located  in the Western United States, the Company and the  lenders
amended the terms of the credit facilities totaling $213 million at December 31,
1999.  Under  this amendment two former credit facilities were amended into  one
new  facility  and the Company paid down approximately $106 million of the  debt
with  proceeds  from  the sale, extended the maturity date to November 30,  2002
from  November 30, 2000 and converted the remaining balance owed,  approximately
$107  million,  to  a  floating  rate  facility.  In addition, the Company  paid
approximately  $4.3  million to "break" the interest rate lock agreement on  $54
million  related  to  this debt. Under the original terms of the loan  agreement
when  the  loan  matured  in  November  2000  and converted to a term loan,  the
interest rate would be based on a benchmark treasury rate of 7.235%.

         Considering the amendments to the existing loan agreements and the debt
repayments discussed above, the Company's total outstanding debt as of  December
31,  2000  (excluding  CRESTS)  is approximately $754.5 million. Of this  amount
$80.0  million  is due in 2001. As of December 31, 2000, the Company's held  for
sale  properties  have  an estimated fair value of approximately $49.4  million,
which  are  encumbered  by  indebtedness  of  approximately  $7.9  million   due
subsequent to 2001.

         In 2001,  the  Company  will  need  to  sell assets and therefore  will
continue  to  identify properties to be classified as held for sale to meet  its
$80.0  million  amortization  payment  requirements  in  2001  and  its  capital
improvement  program,  as  discussed in Item 2. Liquidity and Capital  Resources
section  following.  Although  the  Company  anticipates  being  able  to   sell
sufficient  assets  to meet its obligations in 2001, there can be no  assurances
that  the  sales  will  occur or generate sufficient net proceeds to meet  these
obligations.


                                       18
<PAGE>   21
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

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


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


         - The  Company's  ability  to significantly improve and stabilize  its
           accounting systems and procedures and maintain stability.


         - The  uncertainties  relating  to  the  Company's  proposed  strategic
           initiatives,  including the willingness of prospective purchasers  to
           purchase  the  hotels  the  Company  has  identified  as  divestiture
           candidates  on  terms  the  Company finds acceptable, the timing  and
           terms  on which such hotels may be sold, and other factors  affecting
           the   ability   of   prospective   purchasers   to  consummate   such
           transactions, including the availability of financing.


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


         - The impact on  operations  due to  renovation work being performed at
           certain hotels.


         - The  Company's  ability  to   generate  sufficient  cash  flows  from
           operations  to cover its cash needs, the Company's ability to  obtain
           additional  capital  if needed and the possible default under  credit
           facilities  if  cash  flows  are  lower  than  expected  or   capital
           expenditures are greater than expected.


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


         - The  potential  for  additional impairment  charges against  earnings
           related  to  long-lived  assets  which may result from the  Company's
           strategic  initiatives to reduce the size of the hotel portfolio  and
           reduce debt.


         - The  impact  of  termination  of  letters  of intent from prospective
           buyers of the Company as a whole.


STRATEGIC PLANS

         During  the  past twelve months, the Company's Board of Directors  have
adopted   strategic   plans   that  are  intended  to  enhance  value  for   its
shareholders. At the end of 1999 the Company adopted a strategic plan to  reduce
the  size  of  the  Company's  non-core  hotel  portfolio. In 2000, the  Company
adopted a strategic plan to reduce the level of overall debt of the Company  and
retained  an investment banker to review its strategic alternatives. As part  of
that  review the Company is pursuing a sale of the Company. With regard to  this
strategic  alternative  the  Company  had  received  offers  from Whitehall  and
Edgecliff  to  acquire  the  Company. On December 26, 2000, the Company  entered
into  an  Exclusivity Agreement with Edgecliff in which the Company has  granted
Edgecliff  an exclusive 60-day period during which the two parties will  attempt
to  negotiate  a  definitive  agreement,  and  Edgecliff  will complete its  due
diligence  review. In addition, during the fourth quarter, the Company  recorded
a  charge  of  $3.5  million  relating  to reimbursing Whitehall the expense  it

                                       19
<PAGE>   22

incurred  in  connection  with  evaluating  and  pursuing  the transaction.  The
Company is unable to predict whether the Exclusivity Agreement entered into will
ultimately  result  in an actual sale of the Company. See further discussion  in
Liquidity and Capital Resources following.

         With regard to the strategic plans to reduce the size of the  Company's
non-core  hotel  portfolio and reduce the level of overall debt of the  Company,
the  Company  has  sold  nineteen  hotel  properties and four other assets  from
January  1,  to  December  31,  2000.  Gross  sale  price of these twenty  three
properties  was  $209.1 million while the reduction of debt was $154.9  million.
The balance was used primarily to support capital expenditures related to  major
renovation  projects  and  the  construction of one new hotel. In addition,  the
Company  has several additional assets under contract and scheduled for  closing
during  2001.  See  further  discussion  in  Liquidity  and  Capital   Resources
following.

OVERVIEW

         Management  believes  that results of operations in the hotel  industry
are  best explained by four key performance measures: occupancy levels,  average
daily  rate  ("ADR"), revenue per available room ("RevPAR") and Earnings  Before
Interest,  Taxes,  Depreciation  and  Amortization  ("EBITDA")  margins.   These
measures are influenced by a variety of factors including national, regional and
local  economic  conditions, the degree of competition with other hotels in  the
area  and  changes  in  travel  patterns. The demand for accommodations is  also
affected  by  normally  recurring  seasonal  patterns  and  most  of our  hotels
experience  lower  occupancy  levels  in  the  fall and winter months  (November
through February) which may result in lower revenues, lower net income and  less
cash flow during these months.

         Our  business  strategy  included  the  acquisition of  underperforming
hotels  and the implementation of our operational initiatives and  repositioning
and  renovation  programs  to  achieve  revenue  and  margin improvements.  Such
initiatives  typically  require  a 12 to 18 month period before newly  acquired,
underperforming hotels are repositioned and stabilized. During this period,  the
revenues  and earnings of these hotels may be adversely affected and may have  a
negative impact on RevPAR, average daily rate and occupancy rate performance, as
well  as  operating  margins for the Company overall. In addition, our  strategy
also  included  developing  new full service hotels. Newly developed  properties
typically  require  24  months  following completion to stabilize. To track  the
execution  of our repositioning and development growth strategy's impact on  the
Company's  results  of operations, we classify our hotels as either  "Stabilized
Hotels,"  "Stabilizing  Hotels"  or  "Being  Repositioned Hotels," as  described
below:

         Stabilized Hotels  are properties which have experienced little or  no
disruption  to  their operations over the past 24 to 36 months as the result  of
redevelopment  or  repositioning efforts or newly-constructed hotels which  have
been in service for 24 months or more.

         Stabilizing  Hotels are (1) properties which have undergone  renovation
or  repositioning  investment  within  the  last  36  months, which work is  now
completed, or (2) newly developed properties placed into service within the past
24   months.  Management  believes  that  these  properties  should   experience
higher  rates  of  growth  in  RevPAR  and operating margin than the  Stabilized
Hotels.  On  average, our hotels which have undergone renovation have  generally
reached  stabilization  within  approximately  12  to  18  months  after   their
completion  date,  and  our  newly  developed hotels have reached  stabilization
in approximately 24 months after their completion date.

         Being  Repositioned Hotels are hotels experiencing disruption to  their
operations due to renovation and repositioning. During this period (generally 12
to  18  months) hotels will usually experience lower operating results, such  as
RevPAR,  and  operating  margins.  We  expect  significant  improvements in  the
operating  performance  of those hotels which have undergone repositioning  once
the  renovation  is  completed.  After  the  reposition work is completed  these
properties will be reclassified as Stabilizing Hotels.

                                       20
<PAGE>   23
         Management  classifies  each hotel into one of the three categories  at
the  beginning of each fiscal year. Management will determine the category  most
appropriate  for each hotel based on its evaluation of objective and  subjective
factors,  including  the  time of completion of renovation and whether the  full
benefit of renovations have been realized.

                                       21
<PAGE>   24

THREE  AND  NINE  MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1999

HISTORICAL RESULTS OF OPERATIONS

         The following table presents, for the periods indicated, the period  to
period  change  in  dollars  (in thousands)  and  percentages  for  the  various
consolidated statements of operations line items.


<TABLE>
<CAPTION>
                                                                     PERIOD TO PERIOD                   PERIOD TO PERIOD
                                                                   CHANGE FOR THE THREE               CHANGE FOR THE NINE
                                                                       MONTHS ENDED                       MONTHS ENDED
                                                                SEPTEMBER 30, 2000 AND 1999       SEPTEMBER 30, 2000 AND 1999
                                                                ---------------------------       ---------------------------
                                                                                        (UNAUDITED)
                                                                                 Favorable/(unfavorable)
<S>                                                             <C>              <C>                <C>             <C>
Revenues:
  Rooms......................................................   $   876             0.8%           $   6,431           2.0%
  Food and beverage..........................................    (1,120)           (3.5)              (2,297)         (2.3)
  Other......................................................      (572)           (7.5)              (1,059)         (4.7)
                                                                -------          ------            ---------        ------
        Total revenues.......................................      (816)           (0.5)               3,075           0.7
                                                                -------          ------            ---------        ------
Operating expenses:
  Direct:
  Rooms......................................................       386             1.2               (2,991)         (3.3)
  Food and beverage..........................................        91             0.4                1,949           2.6
  Other......................................................       327             7.2                 (374)         (2.9)
General, administrative and other............................    (7,314)          (15.0)             (22,593)        (15.5)
Depreciation and amortization................................    (3,806)          (29.0)              (8,746)        (21.5)
Impairment of long-lived assets..............................    10,712           100.0              (55,450)       (100.0)
Severance and restructuring expenses.........................        --             0.0               (1,502)       (100.0)
                                                                -------          ------            ---------        ------
        Total operating expenses.............................       396             0.3              (89,707)        (24.7)
                                                                -------          ------            ---------        ------
                                                                   (420)           (1.3)             (86,632)        (98.2)

Other income/expenses:
  Interest income and other..................................       182            63.9                 (108)         (9.8)
  Interest expense...........................................    (4,279)          (21.1)             (16,970)        (29.5)
  Interest hedge break fee...................................    (4,294)         (100.0)              (4,294)       (100.0)
  Loss on asset dispositions, net............................       (21)         (100.0)                 (24)       (100.0)
Minority interests:
  Preferred redeemable securities............................       275             8.2                  962           9.5
  Other......................................................    (1,060)          (80.9)                (293)       (100.0)
                                                                -------          ------            ---------        ------
Income/loss before income taxes and extraordinary item.......    (9,617)          (92.3)            (107,359)       (493.6)
Provision/benefit for income taxes...........................     3,892            93.4               37,805         434.5
                                                                -------          ------            ---------        ------
Income/loss before extraordinary item........................    (5,725)          (91.6)             (69,554)       (532.9)
Extraordinary item:
Loss on early extinguishment of debt, net of income tax
  benefit of $4,224..........................................     6,336           100.0                6,336         100.0
                                                                -------          ------            ---------        ------
Net income/loss..............................................   $   611           727.4%           $ (63,218)       (941.4)%
                                                                =======          ======            =========        ======
</TABLE>


                                       22
<PAGE>   25
         The following table presents for the periods indicated, the  percentage
relationship  that  the  various  statements  of  operations line items bear  to
operating revenues:

                         LODGIAN, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED                   NINE MONTHS ENDED
                                                          SEPTEMBER 30,                        SEPTEMBER 30,
                                                  ----------------------------        ----------------------------
                                                     2000              1999              2000              1999
                                                  ----------        ----------        ----------        ----------
                                                                             (UNAUDITED)
<S>                                               <C>               <C>               <C>               <C>
Revenues:
 Rooms.........................................       75.7%             74.7%             73.6%             72.7%
 Food and beverage.............................       19.8              20.4              21.7              22.3
 Other.........................................        4.5               4.9               4.7               5.0
                                                     -----             -----             -----             -----
     Total revenues............................      100.0             100.0             100.0             100.0
                                                     -----             -----             -----             -----
Operating expenses:
 Direct:
 Rooms.........................................       21.2              21.3              20.5              20.0
 Food and beverage.............................       15.3              15.3              15.9              16.5
 Other.........................................        2.7               2.9               2.9               2.8
General, administrative and other..............       36.2              31.3              36.9              32.2
Depreciation and amortization..................       10.9               8.4              10.9               9.0
Impairment of long-lived assets................       (6.9)              0.0              12.2               0.0
Severance and restructuring expenses...........        0.0               0.0               0.3               0.0
                                                     -----             -----             -----             -----
     Total operating expenses..................       79.4              79.2              99.6              80.5
                                                     -----             -----             -----             -----
                                                      20.6              20.8               0.4              19.5
Other income (expenses):
 Interest income and other.....................        0.3               0.2               0.2               0.2
 Interest expense..............................      (15.8)            (13.0)            (16.4)            (12.7)
 Interest hedge break fee......................       (2.8)              0.0              (0.9)              0.0
 Loss on asset dispositions, net...............        0.0               0.0               0.0               0.0
Minority interests:
 Preferred redeemable securities...............       (2.0)             (2.1)             (2.0)             (2.2)
 Other.........................................        0.2               0.8              (0.1)              0.0
                                                     -----             -----             -----             -----
Income (loss) before income taxes and
 extraordinary item............................        0.5               6.7             (18.8)              4.8
Provision (benefit) for income taxes...........        0.2               2.7              (6.4)              1.9
                                                     -----             -----             -----             -----
Income (loss) before extraordinary item........        0.3               4.0             (12.4)              2.9
Extraordinary item:
Loss on early extinguishment of debt, net
 of income tax benefit of $4,224...............        0.0              (4.1)              0.0              (1.4)
                                                     -----             -----             -----             -----
Net income (loss)..............................        0.3%             (0.1)%           (12.4)%             1.5%
                                                     =====             =====             =====             =====
</TABLE>

                                       23
<PAGE>   26
         As  previously  reported in the Company's Form 10-K for the year  ended
December  31, 1999, during the fourth quarter of 1999, the Company initiated  an
internal  review of its accounting records. The Company experienced  significant
difficulty  in  the  integration  and  conversion of information and  accounting
systems  subsequent  to  the Merger. In addition, the Company determined that  a
significant number of reconciliations involving cash, accounts receivable, fixed
assets, accounts payable and other accounts had not been completed during  1999.
As a result of these systems and reconciliation issues, the Company  experienced
a  significant delay in preparing its 1999 annual financial statements.  Certain
charges  were  recorded  in  the  fourth  quarter  of  1999  after  the  account
reconciliation process was completed in 2000.

         Also,  as  previously reported in the Company's Form 10-K for the  year
ended  December  31,  1999,  the Company concluded, after consultation with  its
prior  independent  auditors  that its internal controls for the preparation  of
interim  financial  information did not provide an adequate basis for its  prior
independent  auditors  to  complete  reviews  of  the  1999 quarterly  financial
information  in accordance with standards established by the American  Institute
of Certified Public Accountants. The Company believes that certain charges  that
were  recorded in the fourth quarter of 1999 and were principally recognized  in
general,  administrative and other in the consolidated statements of  operations
may  relate  to  individual  prior  quarters; however the Company does not  have
sufficient  information  to identify all specific charges attributable to  prior
1999 quarters.

         In   the  opinion  of  management,  the  internal  control   weaknesses
described  above  existed during the first and second quarters of 2000 and to  a
lesser  extent  in the third quarter of 2000. These internal control  weaknesses
caused  a  significant delay in preparing the Company's September 30, 2000  Form
10-Q.   The  Company  has  committed  substantial  resources  to  mitigate   the
previously  identified  control  weaknesses  including contracting with  outside
consulting  accountants  to  ensure  the  Company  has  the corporate  financial
resources  needed  to provide reasonable assurances that it can comply with  the
record keeping and internal control requirements applicable to SEC  registrants.
Management  believes these efforts have enabled the Company to produce  reliable
interim  financial  statements  as  of September 30, 2000 and for the three  and
nine  months  then  ended. The Company is in the process of implementing a  plan
which,  if  successful,  will  enable  the  Company  to  timely comply with  the
financial statement reporting requirements applicable to SEC registrants by  the
time  it is required to file its 2000 annual financial statements and will  have
substantially developed and implemented an adequate control environment by  this
date.  As  part  of this plan, during the third and fourth quarters the  Company
has  implemented  the  following  action  steps;  (i) developed and  implemented
numerous  new  controls and policies, (ii) implemented a process to insure  that
material  transactions  are  recorded  on  a timely basis, (iii) implemented  an
account  closing  process  so  that  all  material  accounts are reconciled  and
reviewed  on  a  timely basis and (iv) reorganized and changed personnel in  the
accounting  and finance functions to improve the accuracy and timeliness of  the
financial accounting processes.

THREE  MONTHS  ENDED  SEPTEMBER 30, 2000 ("THIRD QUARTER 2000") COMPARED TO  THE
THREE MONTHS ENDED SEPTEMBER 30, 1999 ("THIRD QUARTER 1999")

REVENUES

         Revenues  are  composed of room, food and beverage and other  revenues.
Room  revenues  are  derived from guest room rentals, whereas food and  beverage
revenues  primarily  include sales from our hotel restaurants, room service  and
hotel  catering.  Other  revenues  include  charges  for  guests'  long-distance
telephone  service,  laundry service, use of meeting facilities and fees  earned
by the Company for services rendered in conjunction with managed properties.

         Total  revenue  for  the  third  quarter  2000  was  $155.2 million,  a
decrease  of 0.5% and RevPAR was $55.30, an increase of 6.5%, compared to  1999,
despite a decrease of nineteen hotels in the owned portfolio.


                                       24
<PAGE>   27


         The following table summarizes certain operating data for the Company's
hotels  for the three months ended September 30, 2000 and 1999. The  Stabilized,
Stabilizing  and  Being  Repositioned Hotels refers to classifications in  these
respective categories as of January 1 of the year indicated.


<TABLE>
<CAPTION>
                             HOTELS(1)         ADR          OCCUPANCY         REVPAR
                            -----------   --------------  -------------   --------------
                            2000   1999    2000    1999   2000    1999     2000    1999
                            ----   ----   ------  ------  -----   -----   ------  ------
<S>                         <C>    <C>    <C>     <C>     <C>     <C>     <C>     <C>
Stabilized................    91     77   $73.46  $73.13  70.05%  71.00%  $51.45  $51.92
Stabilizing...............     6     35    92.32   75.22  77.56   67.70    71.60   50.94
Being repositioned........    18     22    89.84   80.12  70.80   66.50    63.60   53.32
                             ---    ---   ------  ------  -----   -----   ------  ------
    Total.................   115    134   $78.12  $74.89  70.79%  69.30%  $55.30  $51.93
                             ===    ===   ======  ======  =====   =====   ======  ======
</TABLE>

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

(1)  Excludes the hotel managed for a third party and the partially owned non-
     consolidated hotel.

OPERATING EXPENSES

         Operating expenses are composed of direct, general and  administrative,
other  hotel  operating  expenses  and  depreciation  and  amortization.  Direct
expenses,  including  both  rooms  and  food  and  beverage operations,  reflect
expenses  directly  related  to  hotel operations. These expenses are  primarily
variable  with available rooms and occupancy rates, but also have a small  fixed
component  which  can  be  leveraged  with  increases  in revenues. General  and
administrative  expenses  represent  corporate  salaries  and  other   corporate
operating expenses and are generally fixed. The Company has incurred significant
professional  fees in 2000 to correct internal control weaknesses identified  in
late  1999. Other expenses include primarily property level expenses related  to
general  operations  such  as marketing, utilities, repairs and maintenance  and
other property administrative costs. These expenses are primarily fixed.

         Direct operating expenses for the Company were $60.8 million (39.2%  of
direct  revenues) for the third quarter 2000 and $61.6 million (39.5% of  direct
revenues)  for  the  third  quarter  of  1999.  This  $0.8 million decrease  was
primarily attributable to the $0.8 million decrease in direct revenues.

         General,  administrative  and other expenses were $56.2 million in  the
third  quarter  2000  and  $48.9 million in the third quarter 1999. Included  in
the  $7.3  million  increase  is  $2.0  million  of  professional fees that  the
Company  expended  in  its  effort  to  reconcile  accounts  and to improve  its
accounting systems and procedures.

         Depreciation and amortization were $16.9 million in third quarter  2000
and  $13.1  million  in  the  third  quarter 1999. The $3.8 million increase  is
primarily  as  a result of the completion of a significant number of  renovation
projects  and the opening of three hotels in the latter part of 1999 as well  as
in  the  first  quarter  of  2000, offset by a decrease in depreciation  related
to   hotels   sold.   In  addition,  as  of  September  30,  2000  the   Company
recorded  depreciation  expense  of  $1.6  million  representing nine months  of
expense  related  to the seven hotels previously considered held for sale as  of
December  31,  1999  and  that  are  no longer being actively marketed for  sale
as of September  30, 2000.

         During   the   third   quarter   2000  the  Company  recaptured   $10.7
million  of  impairment  charges  recorded  in  1999  and  2000 as seven  hotels
previously  considered  held  for  sale  as  of December 31, 1999 are no  longer
being  actively marketed for sale.

         Interest  expense  was  $24.6  million in third quarter 2000 and  $20.3
million  in  third  quarter 1999. This increase is primarily attributable to  an
increase in the level of debt throughout 2000 as well as an increase in the cost
of debt offset by approximately $121.1 million of debt repayments occurring late
in the third quarter 2000.


                                       25
<PAGE>   28



         During the third quarter 2000 the Company paid a $4.3 million  interest
hedge  break fee to break the interest rate lock agreement on one of its  credit
facilities.

         Minority  interest  expense was $2.8 million in third quarter 2000  and
$2.0  million  in  third  quarter  1999. The $0.8 million increase is  primarily
attributable  to  higher  net  income levels for those hotels which the  Company
co-owns with its third-party-minority equity partners.

NET INCOME (LOSS)

         After a provision for income taxes of $0.3 million and $4.2 million  in
third quarter 2000 and third quarter 1999, respectively, the Company had  income
before extraordinary item of $0.5 million ($0.02 per share) in the third quarter
2000 compared with $6.3 million ($.23 per share) in third quarter 1999.

         In third quarter 1999 the Company had an extraordinary item, net of
income tax benefit of $4.2 million, of $6.3 million ($.23 loss per share) from
the loss on early extinguishment of debt.

         Net income for the third quarter 2000 amounted to $0.5 million   ($0.02
per share) compared with a net loss of ($0.1) million ($.00 per share) in  third
quarter 1999, for the reasons discussed above.


NINE MONTHS ENDED SEPTEMBER 30, 2000 (THE "2000 PERIOD") COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 1999 (THE "1999 PERIOD")

REVENUES

         Revenues  for  the  Company were $454.8 million for the 2000 period,  a
0.7% increase over revenues of $451.7 million for the 1999 period and RevPAR was
$51.05, an increase of 4.7%, despite a decrease of nineteen hotels in the  owned
portfolio.

         The following table summarizes certain operating data for the Company's
hotels  for  the Nine Months ended September 30, 2000 and 1999. The  Stabilized,
Stabilizing  and  Being  Repositioned Hotels refers to classifications in  these
respective categories as of January 1 of the year indicated.

<TABLE>
<CAPTION>
                             HOTELS(1)         ADR          OCCUPANCY         REVPAR
                            -----------   --------------  -------------   --------------
                            2000   1999    2000    1999   2000    1999     2000    1999
                            ----   ----   ------  ------  -----   -----   ------  ------
<S>                         <C>    <C>    <C>     <C>     <C>     <C>     <C>     <C>
Stabilized................    91     77   $73.35  $74.07  67.78%  68.20%  $49.72  $50.50
Stabilizing...............     6     35    87.72   75.44  66.01   63.40    57.90   47.83
Being repositioned........    18     22    86.62   79.13  61.50   56.50    53.27   44.68
                             ---    ---   ------  ------  -----   -----   ------  ------
    Total.................   115    134   $76.75  $75.23  66.52%  64.80%  $51.05  $48.75
                             ===    ===   ======  ======  =====   =====   ======  ======
</TABLE>

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

(1)  Excludes the hotel managed for a third party and the partially owned non-
     consolidated hotel.


OPERATING EXPENSES

         Direct  operating  expenses for the Company were $178.9 million  (39.3%
of  direct  revenues)  for  the 2000 period and $177.5 million (39.3% of  direct
revenue)  for  the  1999  period.  This  $1.4  million  increase  was  primarily
attributable to the $3.1 million increase in direct revenues.

         General  administrative  and other expenses were $168.0 million in  the
2000 period and $145.4 million in the 1999 period. Included in the $22.6 million

                                       26
<PAGE>   29

increase  is $5.8 million of professional fees that the Company expended in  its
effort  to  reconcile  accounts  and  to  improve  its  accounting  systems  and
procedures.

         Depreciation  and  amortization  expense was $49.3 million in the  2000
period  and  $40.6  million  in  the  1999 period. The $8.7 million increase  is
primarily  a  result  of  the  completion of a significant number of  renovation
projects  and  the opening of 3 hotels in the latter part of 1999 as well as  in
the  first  quarter  of  2000,  offset by a decrease in depreciation related  to
hotels  sold.  In  addition,  as  of  September  30,  2000 the Company  recorded
depreciation  expense  of  $1.6  million  representing  nine  months of  expense
related  to the seven hotels previously considered held for sale as of  December
31,  1999  and  that  are  no  longer  being  actively  marketed for sale as  of
September 30, 2000.

         Impairment  of long-lived assets was $55.5 million in the 2000  period,
consisting  of $9.6 million and $56.6 million in the first and second  quarters,
respectively.  The  first  quarter  charge related to revised estimates of  fair
value  for properties held for sale at December 31, 1999 and the second  quarter
charge  related to the ten hotels sold to Sunstone Investors, LLC on August  31,
2000.  During the third quarter 2000 the Company recaptured $10.7 of  impairment
charges  recorded  in  1999 and 2000 as seven hotels previously considered  held
for sale as of December 31, 1999 are no longer being actively marketed for sale.

         Interest  expense  was  $74.4  million  in  the  2000 period and  $57.5
million  in  the  1999  period.  This  increase is primarily attributable to  an
increase  in  the  level  of debt throughout 2000 as well as an increase in  the
cost of debt offset by approximately $121.1 million of debt repayments occurring
late in the third quarter 2000.

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

         Minority  interest  expense  was  $9.5  million in the 2000 period  and
$10.2  million  in  the  1999  period.  This $0.7 million decrease is  primarily
attributable  to  higher  net  income levels for those hotels which the  Company
co-owns with its third-party-minority equity partners.

NET INCOME

         After  a  benefit for income taxes of $29.1 million in the 2000  period
and  provision for income taxes of $8.7 million in the 1999 period, the  Company
had a loss before extraordinary item of $56.5 million ($2.01 loss per share)  in
the 2000 period compared with income before extraordinary item of $13.1  million
($0.48 per share) in the 1999 period.

         In  the  1999  period  the  Company  had an extraordinary item, net  of
income  tax  benefit of $4.2 million of $6.3 million ($.23 loss per share)  from
the loss on early extinguishment of debt.

         Net loss for the 2000 period amounted to $56.5 million ($2.01 loss  per
share)  compared with net income of $6.7 million ($0.25 per share) for the  1999
period, for the reasons discussed above.

INCOME TAXES

         As  of December 31, 1999, Lodgian had net operating loss  carryforwards
of approximately $90.3 million for federal income tax purposes, which expire  in
2005  through  2018.  The  Company's  ability  to  use these net operating  loss
carryforwards  to  offset  future income is subject to certain limitations,  and
may  be  subject  to  additional  limitations  in  the  future.  Due  to   these
limitations,  a  portion or all of these net operating loss carryforwards  could
expire unused.

LIQUIDITY AND CAPITAL RESOURCES

         Lodgian's  principal  sources  of  liquidity  consist of existing  cash
balances,  cash  flow  from operations and financing. Additionally, the  Company
expects  to  generate  cash  from the disposition of hotels it has targeted  for
sale  and  that  will  be  targeted for sale in the future. The majority of  net
proceeds  from  the  sale  of hotels is expected to be used to reduce  long-term
debt.

         The  Company  had  earnings  from  operations  before interest,  taxes,
depreciation  and  amortization  ("EBITDA"),  as  adjusted  in  2000  of  $116.7
million,  a  10.1%  decrease  from  the $129.8 million for the 1999 period.  The
Company   has   computed  EBITDA  without  regard  to  the  unusual  items   and
non-recurring  charges.  During  2000  these  items consisted of unusual  costs,
principally  professional  fees  and  restructuring costs, of $10.3 million  and
impairment  charges  of $55.5 million. There were no such items recorded  during


                                       27
<PAGE>   30


the   first  nine  months  of  1999.  EBITDA  is  a  widely  regarded   industry
measure  of  lodging  performance  used  in  the  assessment  of hotel  property
values,  although  EBITDA  is  not  indicative  of and should not be used as  an
alternative  to  net  income or net cash provided by operations as specified  by
generally accepted accounting principles.

         Cash  flows  provided  by (used in) in investing activities were  $97.7
million  and  ($27.2)  million  in 2000 and 1999, respectively. The 2000  amount
includes  capital  expenditures of $68.2 million, net proceeds from the sale  of
assets  of  $168.9 million and deposits for capital expenditure escrows of  $3.0
million.  The  1999  amount includes capital expenditures of $63.6 million,  net
proceeds  from  the  sale of assets of $20.5  million, withdrawals from  capital
expenditure  escrows  of  $27.7 million, additions of property and equipment  of
$1.9 million, purchase of minority interest of $10.2 million and other items  of
$.4 million.

         Cash  flows  provided  by (used in) financing activities were  ($108.2)
million  and  $30.3  million  in 2000 and 1999, respectively. The 2000 and  1999
amounts  consist  primarily of the net proceeds from the issuance and  repayment
of long-term obligations.

         At  September  30,  2000, the Company had a working capital deficit  of
$93.4  million  as  compared with a working capital deficit of $65.3 million  at
December 31, 1999. The increase in the deficit is primarily attributable to  the
$42.4 million increase in the current portion of long-term obligations.

         At  September  30,  2000,  long-term  obligations were $710.4  million.
Long-term  obligations  were  $856.7 million at December 31, 1999. Both  periods
exclude the CRESTS.

         The  Company  has a capital improvement program to address the  capital
improvements  required  at  the  hotels  related  to  product improvement  plans
specified  by license agreements with franchisors, re-branding of several hotels
and  general  renovation projects intended to ultimately improve the  operations
of  the  hotels. As of December 31, 2000, the Company's capital budget for  2001
is  approximately $53.3 million and the Company has approximately $14.7  million
escrowed for such improvements.

         In  connection  with  the  Merger  on  December  11, 1998, the  Company
obtained $265 million of mortgage notes from Lehman. The net proceeds were  used
to repay existing debt and related obligations.

         In July 1999, the Company sold $200 million of Notes. In addition,  the
Company  entered into a new, multi-tranche senior secured loan credit  facility.
The  facility  consists  of  development  loans  with a maximum capacity of  $75
million  (the  tranche A and C loans), a $240 million tranche B term loan and  a
$50  million  revolving credit facility. The tranche A and C loans will be  used
for  hotel  development  projects.  The tranche B loan, along with the  proceeds
from  the  Notes  was used to repay the Lehman loan and, in September, a  $132.5
million  loan  (one of three facilities) from Nomura Asset Capital  Corporation.
These  financings  contain  various  financial  covenants,  coverage ratios  and
payment  restrictions with which the Company was in compliance at September  30,
2000  or  which have been waived by the lenders. Payment restrictions  contained
in  the  Company's  Notes  required the Company to defer dividend payments  with
respect  to  the  CRESTS  beginning June 30, 2000. Pursuant to the terms of  the
agreement  the  Company  has  the right to defer the dividend payment for up  to
twenty  quarters.  The  Company does not anticipate resumption of the  quarterly
dividend payment on the CRESTS in the near future.

         The  Company  was  unable  to  deliver  its  1999  annual  audited  and
quarterly  2000  unaudited  financial  statements  to  its  Senior Secured  loan
facility  lenders  on a timely basis. The Company has received a waiver for  the
late delivery of these financial statements and the time period for delivery  of
quarterly 2000 financial statements has been extended. In addition, on July  31,
2000,  the  Company entered into an amendment to its Senior Secured loan  credit
facility  which provides for a 0.50% increase in the interest rate,  termination
of  the  tranche  A  facility  which reduces the maximum credit facility by  $25
million  and  provides  for  additional  amortization  payment requirements  for
tranche  B term loans of (i) $25 million on or prior to December 31, 2000,  (ii)
an  additional $35 million on or prior to June 30, 2001 and (iii) an  additional
$40  million  on  or  prior  to  December  31,  2001.  Prior  to the  amendment,
amortization   payment  requirements  were  effectively  1%  per  year  of   the

                                       28
<PAGE>   31


outstanding  tranche  B  term  loans during that period. The amendment  modifies
various  covenants  and  coverage ratios, with which the Company believes it  is
in  compliance  or  which  have  been  waived  by  the  lenders.  The  amendment
provides  for  immediate  access  to  the  $25  million  unused  portion of  the
revolving  credit  facility  and provides increased flexibility for the sale  of
hotel  assets. The Company paid an amendment fee of approximately $1.4  million.
As  of  December  31,  2000 the Company has paid fully the $25 million  required
amortization  payment  due  December  31, 2000 and has paid approximately  $10.2
million of the $35 million required amortization payment due June 30, 2001.

         As  discussed previously  in Item 2, the Company has adopted  strategic
plans  to  reduce the size of the Company's non-core hotel portfolio and  reduce
the overall level of debt. With regard to these strategic plans the Company  has
sold  nineteen  hotel  properties  and  four  other  assets  from January 1,  to
December  31,  2000.  Gross  sales  price  of these twenty three properties  was
$209.1  million while the reduction of debt was $154.9 million. The balance  was
used  primarily  to  support  capital  expenditures related to major  renovation
projects and the construction of one new hotel.

         The   Company   will  continue  to  explore  potential  property   sale
transactions   in   addition   to  those  discussed  above.  Certain  of   these
transactions include hotels other than those identified for sale currently.  The
discussions  with  potential  purchasers  are  in various stages, including  the
execution  of  preliminary  agreements  in a few situations. Those  transactions
where  preliminary  agreements  have  been  reached are subject to, among  other
things,  buyer due diligence and financing and the cooperation of the  Company's
existing  lenders. Accordingly, the Company is unable to predict whether any  of
the  transactions  being considered will result in an actual sale. The  majority
of the net proceeds from any completed sales will be used to reduce debt.

         In  June  2000,  the Company in an effort to reduce corporate  overhead
expenses  instituted  a  plan to close  four of the six regional offices,  close
the  Company's  reservation  center  located  in  Baton  Rouge,  Louisiana   and
eliminate certain positions in the corporate office. Approximately 65  employees
were  terminated  in  this  restructuring.  The  Company recognized a charge  of
approximately $1.5 million at June 30, 2000 to implement this plan. Of the  $1.5
million charge approximately $1.3 million was related to salary and benefits  of
the  terminated  employees  and $.2 million related to the costs of closing  the
physical  regional  offices  and  the  reservation center. During the third  and
fourth  quarters  of 2000 $1.3 million and $.2 million was charged against  this
accrual,  respectively.  In the future the Company anticipates approximately  $5
million in annual savings from instituting this plan.

         On  August  31,  2000,  in  conjunction  with  the sale of ten  hotels,
principally  located  in the Western United States, the Company and the  lenders
amended  the  terms  of the credit facilities totaling $213 million at  December
31,  1999.  Under this amendment two former credit facilities were amended  into
one  new  facility  and the Company paid down approximately $106 million of  the
debt  with  proceeds  from the sale, extended the maturity date to November  30,
2002  from  November  30,  2000  and  converted  the  remaining  balance   owed,
approximately  $107  million,  to  a  floating  rate facility. In addition,  the
Company  paid  approximately  $4.3  million  to  "break" the interest rate  lock
agreement  on $54 million related to this debt. Under the original terms of  the
loan  agreement  when the loan matured in November 2000 and converted to a  term
loan, the interest rate would be based on a benchmark treasury rate of 7.235%.

         Also  as  discussed  previously  in  Item 2, the Board of Directors  is
actively pursuing the sale of the Company as a whole. During the fourth  quarter
of  2000  Whitehall  and  Edgecliff  each made a proposal to acquire all of  the
outstanding  shares  of  the Company. With regard to this strategic  alternative
the  Company  had  received  offers from Whitehall and Edgecliff to acquire  the
Company.  On  December  26,  2000,  the  Company  entered  into  an  Exclusivity
Agreement  with  Edgecliff.  Under  the  terms of the Exclusivity Agreement  the
Company  has  granted Edgecliff an exclusive 60-day period during which the  two
parties  will  attempt  to negotiate a definitive agreement, and Edgecliff  will
complete its due diligence review; Edgecliff has agreed not to make an offer  to
purchase  the Company at any time during the next 12 months for less than  $4.75
per share; Lodgian may continue to sell specified assets during the  exclusivity
period;  Lodgian  is  permitted  to  consider  other unsolicited offers for  the
Company  if  the  Lodgian  board  concludes  that  such  offers are superior  to


                                       29

<PAGE>   32


Edgecliff's  proposal;  and the Company is not obligated to reimburse  Edgecliff
for  any  of its expenses, nor is the Company obligated to pay any break-up  fee
should  the  Company pursue another transaction. During the fourth quarter,  per
the October 12, 2000 exclusivity agreement with Whitehall, the Company  recorded
a  charge  of  $3.5  million  relating to reimbursing Whitehall the expenses  it
incurred in connection with evaluating and pursuing the transaction. The Company
is  unable  to  predict  whether  the  Exclusivity  Agreement entered into  with
Edgecliff will ultimately result in an actual sale of the Company.

         Considering  the  amendments  to  the existing loan agreements and  the
debt  repayments  discussed  above,  the Company's total outstanding debt as  of
December  31,  2000 (excluding CRESTS) is approximately $754.5 million. Of  this
amount  $80.0  million  is  due in 2001. As discussed previously, the  Company's
estimated  capital expenditures for 2001 is approximately $38.6 million (net  of
escrowed  funds  of $14.7 million). As of December 31, 2000, the Company's  held
for  sale  properties  have  an  estimated  fair  value  of approximately  $49.4
million, and which are encumbered by indebtedness of approximately $7.9  million
due subsequent to 2001.

         In  2001,  the  Company  will  need  to sell assets and therefore  will
continue  to  identify properties to be classified as held for sale to meet  its
$80.0  million  amortization  payment  requirements  in  2001  and  its  capital
improvement  program.  Although  the  Company  anticipates  being  able to  sell
sufficient  assets  to meet its obligations in 2001, there can be no  assurances
that  the  sales  will  occur or generate sufficient net proceeds to meet  these
obligations.

         On  December 15, 2000 the Company sold its hotel under construction  in
Richmond,  Virginia  and  retained  $10.0  million  of the proceeds for  general
corporate  purposes. The Company currently has $23.3 million of availability  on
its  revolving  credit facility. The Company anticipates borrowing the  majority
available  under its revolving credit facility in January 2001 to cover  certain
interest  and  operating obligations. The Company believes that the  combination
of  its  current  cash position, cash flow from operations, availability on  the
revolving  credit  facility  and  net  proceeds  from property (both  properties
identified  and  to  be  identified) sales will provide sufficient liquidity  to
fund  the Company's operating, capital expenditure and debt service  obligations
through December 31, 2001.

INFLATION

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

                                       30
<PAGE>   33


                          PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

         In  July 1999, a contractor hired by Servico to perform work on  hotels
in  New  York,  Illinois and Texas filed a complaint against the Company in  the
Supreme Court of the State of New York, claiming breach of contract and  quantum
meruit,  among other claims. The contractor seeks damages totaling $80  million,
including  $60  million  punitive  damages.  The Company answered the  complaint
asserting counterclaims aggregating $20 million and successfully filed a  motion
to  dismiss the claims related to two properties located in Illinois and  Texas.
In  October  1999,  a  subcontractor filed a lawsuit in Texas against the  above
contractor  and  the  Company.  The Company has filed an answer and  cross-claim
against  the  contractor  in  the amount of $2.8 million. In February 2000,  the
contractor  filed a lawsuit in Texas claiming over $3 million in actual  damages
and  an  undisclosed  amount  of  punitive  damages.  The  Company answered  the
complaint  and  asserted  a  counterclaim. The Company has also filed a  lawsuit
against  the  contractor  in  Federal  District  Court  in Illinois, seeking  $2
million.  The  contractor has filed an answer and counterclaim aggregating  $2.8
million  in  actual  damages  and  $10 million in punitive damages. The  Company
believes that it has valid defenses and counterclaims in these matters and  that
the outcome will not have a material adverse effect on its financial position or
results of operations.

         On  October  13,  2000,  Winegardner  &  Hammons, Inc. ("WH") filed  an
arbitration claim against the Company claiming breach of contract relating to  a
January 4, 1992 contract. WH claims entitlement to profit participation relating
to  the sale of certain hotel properties by an affiliate and predecessor of  the
Company.  Although  the Demand for Arbitration does not make a specific  damages
demand,  it  is  believed that WH is claiming approximately $1,100,000 from  the
Company.  Lodgian  believes  it  has meritorious defenses to this matter and  is
defending it vigorously.

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

ITEM 2. CHANGES IN SECURITIES

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

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits

         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.

                                       31
<PAGE>   34
         (b)      Reports on Form 8-K

         A  report  on  Form  8-K  was  filed  on  July  25,  2000  relating  to
announcement of the date of the 2000 Annual Stockholders Meeting.

         A  report  on  Form  8-K  was  filed on September 21, 2000 relating  to
retention of new independent auditors for the year ending December 31, 2000.

                                       32
<PAGE>   35

                                   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.

<TABLE>
<S>                          <C>
                             LODGIAN, INC.
                             Registrant

DATE: January 10, 2001       /s/ Robert S. Cole
                             ---------------------------------------------------
                             Robert S. Cole
                             President and Chief Executive Officer

DATE: January 10, 2001       /s/ Thomas R. Eppich
                             ---------------------------------------------------
                             Thomas R. Eppich
                             Chief Financial Officer

</TABLE>


                                       33
<PAGE>   36

                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
EXHIBIT
  NO.                               DESCRIPTION
-------                             -----------
<S>         <C>
  27    --  Financial Data Schedule (For SEC use only)
</TABLE>


                                       34